It's all too convenient to blame a rogue employee for a corporate or banking fraud. But when the scandal involves 1000s of staff members, the organisation has to look at its whole ethical culture.

Corporate culture – not individuals – is often to blame for breaches of ethical behaviour in the corporate or the banking worlds. This is the theory put forward by Ethical Systems, a research group that bridges the academic and corporate divide, which believes that “in the long run, good ethics is good business”.

Wells Fargo

This is particularly pertinent to the fallout we've seen in the past month from the Wells Fargo account-opening scandal, in which as many as 1.5 million accounts were opened without customer consent and more than half a million payment cards were issued. It's impossible to put this fraud down to 'just a few bad apples', as about 5,000 Wells Fargo employees were involved.

Libor-rigging

The principle also applies to the Libor-rigging scandal, in which traders felt able and had an incentive to report false London interbank offered rates. Barclays was one of the main banks implicated in manipulating Libor, which influences the US derivatives markets, the interest rates (eg on mortgages) paid by consumers and financial markets around the world.

Incentives for bad behaviour

In a blog for Ethical Systems, Jeremy Willinger writes that employee compensation schemes, an emphasis on short-term results and rewards, as well as leadership recognition/strategies “can make or break corporate culture and ruin a reputation long after the scandal has been addressed”.

Willinger also uses an excerpt from an article in the Wall Street Journal to illustrate the facets of corporate (or banking) culture that can incentivise employees to behave in unethical ways:

• "If the reward system pays a premium for one kind of behavior, that’s what will determine employee behavior—regardless of the words enshrined in the value statement.
• If the financial-reporting system focuses entirely on short-term operating results, that’s what will get priority from employees.
• Look at who gets the atta-boy and atta-girl treatment at corporate meetings. Is it the leaders in meeting financial targets—or is it those who raise concerns regarding marketing programs that give priority to corporate goals at the expense of true customer needs?"

Culture overrides corporate guidelines

Ethical Systems underlines the point that an organisation's culture can over-ride the values and goals written in its practice guidelines or mission statement. Willinger writes: “Culture, above all else, can overwhelm people’s ethical proclivities and morals and overshadows formal and informal guidelines and any efforts made at reputation management.”

Measuring ethical culture

To ensure that corporate and banking culture is ethical, it also has to be measurable but experts say this is one the most difficult aspects of measuring the impact of a compliance programme. Ethical Systems is currently working on an ethical culture employee survey for corporates, which will eventually be offered as a tool for any company to use to test their ethical culture.

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CTMfile take: We won't have seen the end of banking and corporate scandals - that's why embedding good ethical practice into everything we do is a must. Ethical Systems makes a good case for "good ethics is good business".