In fall 2021, Elizabeth Holmes, founder of the now-defunct health technology company Theranos, is on trial on charges of defrauding investors and patients. According to former Theranos employee Ana Arriola, the unethical behavior trickled down through the company, creating a culture of fear and secrecy.

Holmes "did not want to hear other people's opinions . . . anyone who told Elizabeth no and disagreed with her perspective and point of view, you were immediately terminated . . . It was just a very unusual environment,” Arriloa said.

This type of top-down toxic corporate culture ultimately led to scared, unhappy employees and the company's demise. However, committing to an ethical culture can lower your risk of lawsuits, fines, and penalties.

ECI’s 2021 Global Business Ethics Survey Report reveals that 85 per cent of employees who worked at an organization with a strong ethical culture reported other positive outcomes, including:

• Less pressure to compromise ethics standards
• Less observed misconduct
• More reporting of misconduct observed
• Less retaliation for reporting

This guide outlines why your organization needs an ethical culture and how to establish one, step by step.

Jump to a section:

What is a Culture of Ethics?

Why Should I Establish an Ethical Culture?

How to Create an Ethical Culture

Write a Code of Ethics

Get Suggestions From Employees

Get the C-Suite on Board

Encourage Ethics Hotline Reports

Require Employee Ethics Training

What Is a Culture of Ethics?

Before you start planning your new ethical culture, you need to know what it is you're striving towards.

Workplace ethics are "generally derived from secular, self-transcending values," says explains employment and HR attorney Janette Levey. These include:

• Trustworthiness
• Fairness
• Integrity
• Responsibility
• Accountability
• Loyalty
• Respect
• Caring
• Honesty

According to Dr. Tracy A. Pearson, J.D., expert in ethics, leadership, and law, an ethical culture:

"clearly and transparently communicates its policies and processes in a way that all members of the organization can understand. It is a learning organization; therefore it seeks continuous feedback to improve. . . . Ethical workplace cultures do not tolerate conduct that has a negative effect on human dignity, seeing each employee as being valuable to the organization's mission. . . Ethical workplace cultures also follow all laws, hold themselves accountable, and do not engage in deceptive strategies to shift blame. "

In summary, a culture of ethics reinforces ethical behaviour and discourages unethical behaviour, based on your company's established policies and values.

Why Should I Establish an Ethical Culture?

Incorporating ethics into your corporate culture can take a lot of time and effort. So why even bother?

First, an ethical culture protects your employees. If a coworker harasses or discriminates against them, you will take swift action to keep them safe and reprimand the bad actor. They won't feel burnt out or overly stressed by toxic competition. They'll know that if they submit a whistleblower report of suspicious activity or misconduct, they won't be retaliated against.

In the same vein, employees that feel safe and listened to are generally happier and more productive. They'll be more relaxed, allowing their creative juices to flow. Your company might just get its next big idea when employees don't feel trapped in a toxic work environment.

Next, you'll have a better reputation as a company. You won't have to field as many PR disasters when your employees are committed to behaving ethically. Potential clients and customers will know that you have earned your success honestly. This can even translate to higher sales, since 62 per cent of people "want companies to take a stand on current and broadly relevant issues like sustainability, transparency or fair employment practices," according to Accenture.

Finally, an ethics culture protects your company's assets. Teaching employees why fraud and theft is wrong and how it hurts the organization will likely reduce these types of misconduct and reduce your risk of fines, lawsuits, and reputational damage. In addition, fraud might decrease because:

• Employees will feel loyal to you since you treat them with respect, making them not want to steal from you
• Paying fair salaries and providing employee benefits reduces financial need, often a major factor in the decision to commit fraud and theft
• You'll be hiring employees who want to behave ethically from the get-go

RELATED: How to Prevent HR Incidents with a Company Culture of Ethics

How to Create an Ethical Culture

Before you can even begin changing your company culture, you need to commit to ethics as an organization. Transforming the corporate culture will affect every employee, at every level, in every department.

While it might be an idea originating from HR or the CEO, you should form an ethics committee of employees from across the organization. Members should represent a variety of departments, career levels, ages, genders, and races. This group will be responsible for planning how to implement, analyze, and update your company's approach to ethics.

After you've formed your committee, take the actions below to shift to a more ethical culture, step by step.

Write a Code of Ethics

In order to integrate ethics into your workplace, you need to first write a code of ethics (aka an ethics policy). According to a LinkedIn poll conducted by Case IQ, over one in 10 organizations don't have one, which opens them up to misconduct.

This document gives employees ethical guidelines to follow at the office and in other work contexts. In addition, if you share your code of ethics with the public, they can see what your organization values and how you plan to operate with honesty, integrity, and transparency.

Open your code of ethics with a note from your CEO, founder, or other leader. This should discuss your company’s commitment to ethics and the importance of ethical behavior to both company-wide and individual success.

Next, determine the purpose and scope of the policy.

• When/where does it apply (e.g. in the workplace, on job sites, at trade shows/conferences, etc.)?
• Who does it apply to (e.g. full-time, part-time, interns, contractors, consultants, suppliers, etc.)?
• Why are you writing this policy?

Then, list your company's core values or ethical standards. You should also use these to help guide your planning and implementation of your company's new ethical culture.

In addition, include guidance for employees on how to make ethical decisions in the workplace. For example:

When making a decision within or on behalf of [Company Name], ask yourself if it:

• Complies with relevant laws and regulations
• Complies with the code of ethics and other internal policies
• Reflects [Company Name]’s values and ethical standards
• Respects the rights of others
• If you are unsure about any of the answers, ask your manager or a Human Resources staff member for further guidance.

RELATED: 4 Must-Have Sections for Your Company's Ethics Policy

For the rest of your policy, there are two ways you can structure it. First, you can make a section about each core value or ethical standard and list examples of how to adhere to those. For instance,

At [Company Name] we value honesty, transparency and integrity in all aspects of our work. We will not:

• Lie, cheat or deceive others to get ahead
• Steal from or otherwise defraud the company, vendors or other employees
• Sacrifice the company’s values, ethical standards and mission in the name of success

We will:

• Disclose conflicts of interest
• Freely share information with other employees if it could impact their work

You can also create sections based on common ethically confusing scenarios and topics, with guidance around each. Sections might include:

• Gifts, hospitality, and entertainment
• Conflicts of interest
• Acquisition and use of data
• Nepotism
• Leadership

Finally, share information on how, where, and when employees should report suspected breaches of the policy. Include contact information and instructions for your reporting mechanisms (e.g. hotline, email address, webform, etc.).

Want more help writing your code of ethics? Download our free template here.

Get Suggestions From Employees

"Everyone is going to have input that's important," says ethics expert Christopher Bauer, PhD, CSP, CFS. While your ethics committee will do most of the planning work, surveying or interviewing every employee will tell you "what's working [and] what's not working," he explains.

No one person or group knows everything that goes on in every department; not HR, not the C-suite. That's why Bauer recommends asking employees for suggested solutions to ethics problems they encounter.

Bauer suggests using this script:

"From your perspective, in your position, given your job description, given what you hear from your supervisors, from your trainers, from your clients, from your customers, what are some things you think we could be doing differently to make [the company] better?"

This question will help you see what working for your company is like for this person, in this specific role, and the issues they face. It also helps you get insight into ethical concerns customers, clients, and suppliers see in your organization without reaching out to them.

"They may not be sophisticated or educated but that doesn't mean they don't have something to offer [or] that you can't learn something from them," explains Frisch From the custodian to the CEO, every person who works at your organization has a unique experience working there that could inspire ideas for ways to make it better.

While some ethics initiatives and policies apply across all departments, you'll need to plan specific guidance and programs for each part of your company.

To start, compile the information you gathered through the employee surveys/interviews described above.

• What patterns do you notice?
• Did numerous accounting employees complain about harassment?
• Did sales employees mention their managers accepting questionable gifts from clients?

Take this insight and use it to create new protocols and procedures as part of your ethical culture.

Get the C-Suite On Board

According to one study, employees want to see honesty (90 per cent), fairness (89 per cent), and trust (86 per cent) from their managers. If they don't see those ethical behaviors, they won't feel as engaged or positive at work.

What's worse, if a manger openly displays unethical behavior, their employees could see that as permission or even pressure to act the same way.

When planning your new ethical culture, make sure managers, especially at the senior level, are on board. They not only need to believe in and commit to each new policy and initiative, but also demonstrate this to lower-level employees.

For example, they should:

• Be transparent about the successes and failures of the company and themselves
• Model ethical behavior, especially when working with lower-level employees
• Volunteer to participate in ethics initiatives
• Demonstrate a good attitude toward new ethical initiatives and "talk them up" to employees

An ethical culture should hold "employees in leadership roles accountable, even if doing so may cause short term pain for the organization," Pearson says.

RELATED: Ethics at the Top: How the C-Suite Affects Company Culture

Encourage Ethics Hotline Reports

Pearson explains that an ethical company "values human dignity and encourages employees to report concerns by creating an environment that shows there is psychological safety. They do not allow retaliation, protect employees who do come forward, and act on the information they receive."

Employees are becoming more socially aware of what is acceptable and not in the workplace and with organizations focusing on providing employees with an opportunity to speak up, this trend will only increase in years to come.

Step one: If you don't currently have any internal reporting mechanisms in place, set them up immediately. They can help you stop fraud, harassment, and other misconduct before it balloons into something disastrous, and can even help you prevent these incidents altogether.

Once you've gotten your hotline or other reporting channel(s) in place, you need to emphasize their importance to your employees.

You've included information about reporting ethics lapses in your code of ethics, but you can't stop there. To make sure your ethics hotline is successful, communicate this information to your employees over and over again.

Send out quarterly or annual reminder emails reiterating how and where to report incidents and what to expect if they do so.

Hang posters (like this free, downloadable one) in common areas such as the break room or hallways with hotline contact information.

Ask managers to emphasize the importance of coming forward and your company's commitment to zero retaliation to their staff.

The more you expose your employees to your hotline, and the more you explain its importance, the more likely you are to receive tips that could save your organization from lost funds or a damaging scandal.

Require Employee Ethics Training

Finally, once you've planned and implemented all of your new ethical culture components, train your employees on how to follow them.

Bauer stresses the importance of training, saying:

"It is amazing how many organizations simply hand people the ethics code, they sign off on it once a year and that's the end of it." People have to know what's in [your ethics program/code], they have to know how to apply it, they have to know how to make it a document that will help them make ethical decisions."

He notes that a simple online quiz won't do the trick, either. Live, in-person (if possible) training sessions keep employees engaged and actually learning the information. This format also allows the instructor to see when employees are struggling with a concept.

"It isn't training until people know how to use what you're telling them," he explains.

So, what do you include in this training?

Frisch says ethics training should teach employees "to think about ethical aspects of everyday work life." To accomplish this, she continues, cite case studies from your organization (with identifying information removed) and ask employees questions about why the conduct was unethical and what the person should have done instead.

While training should be ongoing, it doesn't always have to be long, formal sessions.

"Let's say long lunches is an issue," Frisch says. "You could have periodic staff meetings, you know it could even be something where the company provides lunch, and you're discussing, just as you might discuss profits and losses . . . 'How do you suppose long lunches affect our ethical code and the type of place it is to work and the impact it has on people?'"

Supplementing annual training modules with short, focused, informal meetings keeps ethics top of mind for employees. This approach also helps employees confront a current issue in your workplace, jogging their memory of specific guidance that might have gotten lost in a sea of information from their formal training.

RELATED: 5 Ways to Improve Your Company Culture Starting Today

"Ethical workplace cultures do not use concepts such as integrity or ethics as marketing tools, but demonstrate these concepts through action," Pearson says.

An ethical culture can't just be a set of policies collecting dust that you think will make your organization appealing to potential employees and customers. In order to be successful, every employee must commit to integrating ethics into every aspect of their work day.