Yes, you can measure ethical culture

How do you measure ethical culture? And how do those measurements influence business outcomes? In this episode of the Principled Podcast, Ethics & Compliance Advisor Arieana Thompson talks with her colleague Emily Miner, Senior Ethics & Compliance Advisor, about the 2021 LRN Benchmark of Ethical Culture—a new study from LRN that will be released in the coming weeks. In this global benchmark survey of 8,000+ employees at corporations around the world, LRN examines the underpinnings of corporate culture and its influence on employee perceptions and performance. Listen in as Arieana and Emily explore how ethical culture doesn’t just protect business assets and reputation; but also propels the bottom line.

Intro: Welcome to the principled podcast brought to you by LRN. The Principal Podcast brings together the collective wisdom on ethics, business, and compliance, transformative stories of leadership and inspiring workplace culture. Listen in to discover valuable strategies from our community of business leaders and workplace change makers.

Ariana Thompson: How do you measure ethical culture? And how do those measurements influence business outcomes? Hello, and welcome to another episode of LRN principled podcast. I'm your host, Arianna Thompson, ethics and compliance advisor. I'm joined today by my fellow ENC advisory colleague and cohost Emily Miner for discussion on LRN's, 2021 benchmark of ethical culture, a new proprietary study that will be released in the coming weeks. In this global benchmark survey of nearly 8,000 employees at corporations around the world, we examine the underpinnings of corporate culture and its influence on employee perceptions and performance. We'll also explore how ethical culture doesn't just protect business assets and reputation, but also propels the bottom line. Emily, let's dive in. What prompted a study on ethical culture? Can you take me through the process of designing the research? There's been a lot of studies recently about culture. What makes this study unique?

Emily Miner: Yeah. Ariana, and it's really wonderful to be here talking with you about this topic. I know it's one near and dear to both of our hearts, but at the end or the middle of last year at LRN, we were reflecting on all the unprecedented and simultaneous forces that we were seeing in the world and in our society. Of course, COVID being one of them, racial unrest in the United States, we had the business round tables statement on the purpose of a corporation, rising movement of stakeholder capitalism, as opposed to shareholder capitalism. We were watching the rise in employee activism, noticing the term ESG, environmental, social and governance popping up more and more and more in the headlines, increased focus on diversity, equity and inclusion, more questions and challenges for boards of directors to be more actively shepherding the behavior in their organizations.

And I know that I just mentioned a lot and that's really why we thought that this was the right time to look at organizational culture because there's so much going on in our world and the line between business and the world in which it operates, just continues to grow more and more fluid. So we thought that this was the right time to do an inquiry into the current state of culture in organizations around the world. And I should say that this study really built on research that LRN has conducted in the past. So for, gosh, I guess it's been 10 years now, we've regularly been asking questions about culture and behavior and how that impacts different business outcomes. And so this was really just the next step in that ongoing exploration of these factors. So drawing on that previous research, we started to compile a construct of culture.               

What is culture? You know, we had measured different dynamics or dimensions of culture in the past. We have a number of expert colleagues in the organization that we invited their perspective. We also conducted a pretty extensive literature review, both of academic and business research around how culture is understood and defined. And all of these inputs led to the creation of about 12 dimensions as we call it, or factors of culture. We also collaborated with an external industrial organizational psychology consultant associated with Michigan state university who has specific expertise in research design methodology, and psychometrics to support the development of the actual questions.               

So for example, if we know that one of the dimensions of culture is trust, what questions do you ask to really measure trust? And so we partnered with this external consultant to help us construct the questions that went through a cultural sensitivity review so that the questions would be kind of uniformly understood regardless of where someone came from. And then we used a leading assessment provider to field, a global study for us that tested and validated this questionnaire. And we ultimately collected almost 8,000 responses from full-time employees, ranging from individual contributors to the C-suite sampled from 14 countries, Asia, Europe, North America, South America, and offered in 12 languages.

Ariana Thompson: Emily, you know when we were first talking about this study, I was really blown away by the amount of people that you are able to collect in this journey. As you know, I did a number of academic studies when I was pursuing my PhD and we were lucky if we were able to get a sample size of 250 employees. So it's very rare to have nearly 8,000 employees from across the globe, but I find that inspirational as we're able to draw powerful conclusions as we move on to talking about results.

Emily Miner: Yeah. Perhaps the difference between academia and business sometimes in terms of resources, unfortunately. Yeah. And so after that, after we collected the data, I actually went out on maternity leave and kind of handed the reins over to you to dig through the data and see what we found. So talk about how we analyze the results, tested all of these different constructs or dimensions of culture and built our resulting model.

Ariana Thompson: Absolutely. I'd love to. We really did go through a comprehensive process of refining the questionnaire. We re-engaged with the industrial organizational psychology consultant that helped us develop the items to come back and retake a look at each item on the backside after we collected the data. So we could understand, are these items in actuality functioning the same across different languages? As we want to ensure that this is a globally validated assessment, we decided to remove some questions that perhaps didn't work as well in different languages, which may also signify different cultural contexts as well. Once we went through this process of defining and redefining the dimensions, we were able to also test the reliability. So the reliability addresses the extent to which each of the items reliably is related to the whole. So in other words, do five items related to organizational justice all cluster well together to ensure that the full domain is organizational justice?

Emily Miner: Sorry, just to clarify, when you say items you're referring to questions? Like surveys questions?

Ariana Thompson: Yes, absolutely. So items kind of cluster up to dimensions, but that is a great call-out. These are different questions that might assess different characteristics of a dimension. So organizational justice is made up of many different factors in an organization and seeing how these different questions are representing the whole concept of organizational justice was really important to us in making sure we're getting the assessment right. So this lends to a high level of practicality and generalized ability as we come out of this refining process.

Emily Miner: Got it. Yeah. Going back to the trust example, it'd be perhaps hard to measure trust in an organization by asking one question since it's such a complex dynamic. So thanks.

Ariana Thompson: Exactly. No, thank you. And so from here, as we looked at our dimensions, which we had many of to look at the very, very various factors that go into making up a culture, we also wanted to understand the relationship on a bit of a larger level. So what we did is we looked at the different underlying factors of the many scales that we mentioned to ultimately identify five key cultural, behavioral and performance domains. And these were core architecture of an organization, leadership, the work atmosphere, ethical behavior and business performance.          

So these five domains may not be immediately intuitive to the listener. So I'll try and break them down real quickly. So when we mentioned core architecture, especially when it comes to developing an ethical culture, we're really interested in whether or not the organization has mission and values that really help drive forward a sense of corporate ethics and meaning for employees, as well as having strong ethics and compliance trainings, code of conduct policies and beyond making sure that there's transparency in all communications, especially top down and then making sure reward systems are tied back to these values. And actually employees have financial compensation related to pursuing values on a day-to-day basis. But we also think it's important that these written and foundational for architecture modalities are also supported by leadership and leadership's actions specifically.

So do leaders model the values in action and do they also recognize their employees that model values? And so what this does is it helps feed into a work atmosphere that can be characterized by trust, organizational justice, belonging, and freedom of expression.

Emily Miner: Yeah. And the work atmosphere, that's kind of like your day to day, the average employee's day-to-day experience and the freedom of expression, one that you mentioned, just I want to kind of pause on that for a little bit, because one of the things that we found in our literature review, and then when we looked at other surveys of culture, assessments of culture that are out there, freedom of expression or speaking up is quite often, particularly in the ethics and compliance space conceived of as speaking out about misconduct, like specifically about misconduct. And I know that we looked at that too, but one of the things that I think is kind of different about our approach is that we recognize speaking out about misconduct is important, but that's not the only way that people speak out or express themselves in an organization.

And so we also looked at things like whether people feel comfortable asking questions, if they don't understand something or whether they feel empowered to share their ideas, to offer suggestions, to participate in dialogue, particularly in front of those that might be more senior to them. And so it's a much more, I think, holistic view of what it means to speak out or express oneself in an organization. Another term that's often used kind of adjacent to this space is that of psychological safety. So do people feel safe to speak up and share to share their ideas, their opinions, those aspects of themselves?

Ariana Thompson: Absolutely. I love that call out because we were kind of getting very detailed about culture, but we're also on a high level, very interested in how people feel coming to work, how they experienced their day to day and whether or not they're able to be themselves at all points, which is why the fourth and fifth key factors that we're interested in our performance. We're interested in the interaction between these various factors and when people feel more comfortable being themselves at work, how does that impact their ethical behavior? As we see through values-based conduct, upholding values even under pressure, and then whether or not they do speak up when, like you were saying Emily, those instances of misconduct do arise. And then business performance outcomes as well are certainly of interest to us, whether or not the organization is poised for growth, suited for innovation, has strong employee loyalty and beyond are of interest in nearly everyone in the organization. I'm sure.

Emily Miner: Yeah. And so measuring the extent to which an organization's culture drives those performance outcomes or influences those performance outcomes.

Ariana Thompson: Exactly. We're very interested in the relationship between these five domains and how we might predict performance outcomes and ethical behaviors as a relation of other cultural elements.

So what we did is we actually leveraged an advanced form of statistical analysis called structural equation modeling so that we could provide some statistical evidence for whether or not different business and employee behaviors could be predicted based on having or not having these other characteristics of strong core architecture, leadership, and a healthy work atmosphere. And we were very excited to see that we can directly predict principal performance as it relates to seeing success with the foundation of other ethical culture facets. And we saw this to a strong extent as well, for those of you nerds out there, we measured the effect size of this model through our squared values. And we saw that they reached 0.8 and 0.9, which is pretty incredible.

Emily Miner: So those, those sound like big numbers, 0.8, 0.9, assuming a zero to one scale. But for those that aren't the stats nerds listening in. Can you talk a little bit more about what an R-squared value is or what it represents?

Ariana Thompson: Of course. Yes. Definitely. R-squared value is always a bit of a tricky one, although powerful. So our R-squared value looks at the rest of our model. So it looks at for architecture, leadership and work atmosphere and the extent to which those factors can predict our outcomes of performance, both related to employees and the business. So as it relates to ethical behaviors on the employee side, we have that R-squared value of 0.8, which indicates that we can account for 80% of the variance in employee behaviors on the basis of these other factors. So in other words, if you focus on different cultural elements, you're likely to see higher performance outcomes through this model, which is pretty cool.

Emily Miner: Yeah. That's super powerful. I mean, 80% is really significant.

Ariana Thompson: I'm actually really intrigued to hear you talk with us a little bit more about some of the results that we saw. Can you help provide the listeners today a little bit more information on what did we find in our data?

Emily Miner: Yeah. Because I think this kind of gets to the, "so what?" Right? So we have this model of culture and demonstrated relationship between cultural elements and behavioral outcomes and business outcomes, but so what? What does that mean? And what we did, or what we found was that those organizations that had really strong cultures, and the way that we define strong culture, we really took a kind of a statistical approach to it just by breaking the respondents down into core tiles. So this would be the top core tile. So the top core tile had really high marks across our outcome variables. So for example, you mentioned performance under pressure. How do people behave when they are under pressure to meet deadlines or quotas or financial targets? I'm thinking of a number of corporate scandals that have made the headlines over the past several years because of unreasonable business targets and the misconduct that arose as a result of that.    

So when we look at this dimension of performance under pressure, we found that 94% of the respondents in the top core tile answered positively stating that even under pressure, people were behaving ethically and in alignment with values. And that's compared to only 50% in our lowest core tile. So almost half. And the magnitude effect was observed across all of the behavior and business outcomes that we looked at. So 55% of respondents in our bottom core tile said that they experienced employee loyalty, employees willingness to stay or desire to stay in an organization. Again, compared to 95% in the top core tile. So when you think about an ROI for culture, those are some pretty compelling statistics.

Ariana Thompson: They really are. It's pretty great that we can showcase those differences that we see in outcomes when people are willing to invest in their culture and their employees experience. Kind of speaking of the employee experience, we did see some differences in perceptions of company culture by demographic. Is that right?

Emily Miner: Yeah. And this is something that we've seen before in our previous research. And I know other research studies out there have found this as well. A dynamic that is sometimes called the leadership disconnect. And that's basically when senior leaders have a much more kind of favorable view of their organization's culture than the majority of the employee population. And we looked at the culture scores for senior leaders. So that would be those in the C-suite middle management kind of VP director level, and those on the front lines, those individual contributors. And we found a pretty big gap between the ones at the top and the ones at the so-called bottom. And that just kind of highlights the need for leaders to work a little harder, to make sure that they understand what's going on in their organization on a day to day.     

And we also saw that there was some variation by race and ethnicity. There's been obviously an increasing focus on diversity, equity and inclusion, and a lot of organizations have made really great strides and many more have articulated commitments and plans for how to do so, but we still saw a gap in, or a variation in the experience of people identifying as female, as well as people identifying as African, Black, Afro-Caribbean or African-American. So those respondents tended to report less favorable results across pretty much all of the cultural dimensions that we were looking at. So I think that that just kind of underlines that although corporate DEI efforts have grown in the past five years, we still have a long way to go. You can't really undo decades and centuries of unequal treatment in five years. And I think that most business leaders are clear-eyed about that.

Ariana Thompson: I love that point, Emily. I think it's a great place for us to understand the connectedness between our culture, and the people we are bringing in and making sure that our ethical culture supports people of various backgrounds and perspectives and makes them feel included, and a sense of belonging in the organization culture is about everyone. One of the important elements of assessment is to make sure when we're collecting voices, that is representative of everyone.

Emily Miner: Absolutely. Yeah, that was well said. So let me turn it back to you, Ariana, what kind of results or findings are exciting for you?

Ariana Thompson: I am a little too overjoyed about this study, to be honest, because I love that we really captured the many areas that organizations should keep an eye on and the powerful role of culture in organizational functioning and employee behavioral outcomes. So I think it is great to show how these different elements that many organizations have just been a little bit late to the game. It used to be a leadership consultant, and I was constantly surprised by the lack of investment in leadership development or the lack of investment in creating powerful employee values and mission that employees can connect to and gain a sense of meaning through. And so I think really the beauty of this is that we are providing a new framework for organizations to begin to take another look at their culture and maybe the way that they never have before.          

And I think this is so compelling because our very large data set showed a very clear relationships between companies that can be successful in leveraging meaningful mission and values, reinforce these values through their leadership and foster a positive work atmosphere. Then they will see success in outperforming the competition, retaining top talent and just allowing for a healthy and enjoyable workplace for everyone, which is also the goal of senior leaders down to individual [inaudible 00:22:53]. At the end of the day, I think we all want to enjoy our job. So I think that there are just so many benefits that employees and organizations can reap from taking a renewed focus at culture. And I hope that this study encourages organizations to do so.

Emily Miner: Yeah. And you were mentioning keeping top talent and kind of a positive workplace. It just reminded me of a statistic I read recently. I think it was Gallup that found that 65% of the American workforce right now is looking for another job. And that is such a high percentage that it really drives home, the need for organizations to think about the value that they're providing to employees and organizational culture is obviously one of them.

Ariana Thompson: Absolutely. And to add to that article that I read this week, put out by Fortune, called it the great resignation. I knew that we were definitely facing some talent challenges, but the fact that it was named the great resignation as a used term throughout industries at the moment, I think even goes to showcase that for.

Emily Miner: Yeah, absolutely. I think one of the other benefits that we see from having such a large data set is that we are able to really slice and dice the data by a number of factors, such as industry geography, company size, et cetera, and with statistical reliability. So being able to say that the results for the manufacturing industry are statistically valid, meaning that they can be generalized. And I think that ability to kind of look at the variation, look at the results as a whole, and thinking through the global state of culture, but then also being able to say, "okay, well, what does it look like here in this country?" Or what does it look like over there? And this industry is also just a really exciting aspect of this treasure trove of data.

Ariana Thompson: That's a really great point. I think I want to go little deeper on why does any of this matter? Why should organizations measure culture and what should listeners of this podcast or readers of our report do with this information?

Emily Miner: Yeah, I was having a conversation with a large retailer earlier in the week and their chief diversity officer, I'm going to quote her said, "Culture doesn't just happen. You have to intentionally manage it." And she so right. Well, I guess culture does just happen, but it might not be the culture that you want it to happen. And so, if culture is another key performance indicator for organizations in order to manage it, you have to measure it. Peter Drucker is still correct with that old adage. And I think that's, to me, one of the big takeaways. Organizations and leaders of organizations need to be intentional about fostering and shaping the type of culture that is going to best position them for sustainable growth. There's also the just the bottom line perspective.            

So I talked earlier about the way that those top core tile of our respondents really outperform on a variety of behavioral and business metrics. So even if there isn't an altruistic reason for focusing on culture for the sake of culture, although I would argue that there is, there's a business case for it. So I think that's another kind of, why does this matter point that I would say, and you talked about the great resignation, that's another point. And we were talking earlier about kind of some of those misconduct scandals, and what's been so interesting to watch over the past five years or so is if you look at so many of the headlines, whether that's Wells Fargo or Volkswagen or Boeing, or, even back really to the Challenger Space Shuttle Disaster, culture is referenced as one of the root causes for these business failures.               

It's not process or one sort of rogue employee. We no longer talk about the bad apple. We're really talking about the bad tree. And so I think that there's a growing recognition among the business leaders that I'm talking to that to protect their reputation, to reduce their risk exposure, as well as to propel their growth, they need to focus on their culture.

Ariana Thompson: Absolutely. And I want to go back to what you're talking about, measurement, where it often is a first step to measure your culture. So you can start with that baseline level of awareness. And I think with culture awareness is key and a tying back to what we were talking about earlier with the leadership disconnect, where most senior leaders tend to have a rosier picture of what's going on in their organization and how happy their organizational atmosphere is and how comfortable people feel speaking of about misconduct. There's often a gap there and senior leaders can be quick for different reasons, be it shortage of time or money to assume that they have a clear understanding of what's going on in their organization, especially at the individual contributor level, but that might not always be the truth.           

So I think this underlines the need to actively seek out your employees perspectives, gives them opportunities to share and allow space to understand what is actually going on with being able to put aside your personal bias or perspective to the side in order to actively listen. And so I think this is really about being proactive about cultivating the kind of culture you want, starting with a baseline awareness and also a vision for the ideal state in the amazing culture that you could be.

Emily Miner: Yeah, absolutely.

Ariana Thompson: Well Emily, there is so much we could dig into in this report, but I'm watching the time and it looks like we are about out of time for today and we don't want to give everything away just yet. Thanks for being here in this discussion. It's been great.

Emily Miner: Oh yeah, absolutely. My pleasure.

Ariana Thompson: And to our listeners, we can't wait to share the rest of our findings in the upcoming benchmark of ethical culture report. Until then, my name is Ariana Thompson.

Emily Miner: And I'm Emily Miner.

Ariana Thompson: Thank you so much for joining us on the Principle Podcast by LRN.

Outro:   We hope you enjoyed this episode. The Principle Podcast is brought to you by LRN. At LRN, our mission is to inspire principled performance in global organizations, by helping them foster winning ethical cultures rooted in sustainable values. Please visit us at LRN.com to learn more. And if you enjoyed this episode, subscribe to our podcasts on Apple Podcasts, Stitcher, Google Podcasts, or wherever you listen. And don't forget to leave us a review.

 

Episode Cover - 2

 

Emily Miner

Emily Miner is a Senior Advisor in LRN’s Ethics & Compliance Advisory practice. She counsels executive leadership teams on how to actively shape and manage their ethical culture through deep quantitative and qualitative understanding and engagement. A skilled facilitator, Emily emphasizes co-creative, bottom-up, and data-driven approaches to foster ethical behavior and inform program strategy. Emily has led engagements with organizations in the healthcare, technology, manufacturing, energy, professional services, and education industries. Emily co-leads LRN’s ongoing flagship research on E&C program effectiveness and is a thought leader in the areas of organizational culture, leadership, and E&C program impact. Prior to joining LRN, Emily applied her behavioral science expertise in the environmental sustainability sector, working with non-profits and several New England municipalities; facilitated earth science research in academia; and contributed to drafting and advancing international climate policy goals. Emily has a Master of Public Administration in Environmental Science and Policy from Columbia University and graduated summa cum laude from the University of Florida with a degree in Anthropology.

Episode Cover - 4 host

 

Host

Dr. Arieana Thompson believes in transforming the modern-day workplace through thought-provoking, evidence-based insights.

Arieana is a subject matter expert in executive leadership, succession management, ethics and compliance (E&C), wellness cultures, and employee development. Arieana has experience advising in external and internal capacities and professional speaking. Arieana offers professional and wellness coaching, helping leaders and individuals to harness natural strengths and reduce stress.

As a scientist-practitioner, Arieana actively researches and publishes employee well-being, organizational culture, and leadership thought-pieces in both industry and peer-reviewed academic journals (see links in the "Featured" section below). These publications enable executives to create and sustain values-led, profitable, and creative companies.

Find this episode of Principled on Apple Podcasts, Google Podcasts, Stitcher, SoundCloud, Podyssey, or anywhere you listen to podcasts.