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The Impact of Ethics on Brand Reputational Value

Would you consider your organization’s brand to be an asset or a liability?

Organizations have traditionally calculated their value in large part by assessing the worth of tangible assets such as land, facilities and equipment. However, in recent years, there has been a noticeable shift in what determines the true value of an organization. These days, your brand has a bigger impact on your company’s reputation – and bottom line – than ever.

According to a joint study conducted by mass media and information firm Thomson Reuters and brand consulting firm Interbrand, three decades ago, tangible assets comprised approximately 95 percent of a company’s value. Today, about 75 percent of the value is based on intangible assets, particularly the organization’s brand and reputation. A strong brand reputation typically equates to increased value and higher profits, while damage to a brand can cause value to plummet quickly, and in some cases, irreversibly.

Customers Place a Greater Emphasis on Ethics and Brand Value

These days, customers don’t just consider the quality and price of the goods and services an organization offers when making their purchasing decision; they also evaluate the ethics of the company and its products. They place a higher premium on factors such as ethical behavior, trust and responsible consumption. In many cases, they’re willing to pay a higher price for products from companies they perceive to be more ethical and socially responsible than their competitors.

Organizations that understand the link between ethics and brand value are the ones that are now thriving. A good example is Starbucks Coffee Company. Matthew Swaya, Senior Vice President, Deputy General Counsel and Chief Ethics and Compliance Officer at Starbucks, states that ethics has played a critical role in shaping the coffee giant’s largely positive brand reputation.

“Ethical behavior from both the company and our partners has a fundamental impact on our brand,” Swaya said. “Treating each other with respect and dignity is at the very core of our culture and our mission, shaping the way we are viewed as a brand. It informs how we behave as a company and gives us a sense of responsibility. It also is meaningful to our customers to support a company with such a strong sense of responsibility.”

How Do Companies Lose Their Brand’s Reputational Value?

While strong ethical behavior can lead to a solid brand reputation, ethical breaches can have the opposite effect. Ways in which an organization can quickly lose its brand’s reputational value include:

·        Derogatory online and social media postings: Any ethics or compliance failure can quickly find its way to the Internet or a social media site and create a major hit to a company’s brand reputation. For example, a video of an employee engaging in some type of inappropriate behavior while on the job that goes viral can cause severe damage in a brief timespan.

·        Improper actions of third parties: Organizations that outsource work or enlist the services of subcontractors can be vulnerable to the consequences of a third party’s inappropriate behavior. Customers often do not make a distinction between the organization and its third-party service providers.

·        Increased enforcement actions: Ramped up enforcement of ethics and compliance-related regulations in recent years has led to an increase in prosecutions and litigation against wrongdoers. In addition to any resulting criminal prosecutions and/or financial penalties, the adverse publicity can cause significant brand damage.

Case in Point: Wells Fargo

A recent example of how unethical behavior can negatively impact a brand’s reputational value is the Wells Fargo scandal. A Los Angeles Times investigation led to the revelation that, between 2011 and mid-2016, Wells Fargo employees used customer information to create over 1.5 million unauthorized deposit accounts and approximately 500,000 unauthorized credit card accounts, generating at least $2.6 million in illicit fees for the company. In September, 2016, Wells Fargo was ordered to pay more than $185 million in fines related to the scandal.

Ironically, the Wells Fargo scandal came on the heels of the company being named the world’s most valuable bank brand in 2013 and 2014. However, the fallout from the scandal has caused significant damage to the company’s brand. According to the CNN Money website, a recent survey indicates that negative perceptions of the Wells Fargo brand have increased to 52 percent, a dramatic rise from 15 percent prior to the scandal. In addition, the number of people stating they would never conduct business with Wells Fargo rose from 22 percent to 54 percent.

Using Ethics Management to Strengthen and Protect Your Brand’s Reputational Value

According to Forbes, organizations that are serious about strengthening and preserving their brand’s reputational value must give it the same level of consideration and attention as any other important business asset. This requires the implementation of the following ethics management steps:

  • Focusing on the most vulnerable areas:There are approximately nine critical areas where ethical issues can negatively impact an organization:
    • Customers and markets
    • Strategy
    • Product and service
    • Employees
    • Risk Management
    • Procurement
    • Design, brand and quality control
    • Knowledge and intellectual property management
    • Leadership
  • The key is to focus on identifying and improving your organizations three-to-five most vulnerable areas.
  • Make a long-term commitment to ethics: It will take time to notice the economic impact of a strong ethics program on your brand’s reputational value. At minimum, you should consider developing a comprehensive five-year plan.
  • Keep the lines of communication open: The organizations that tend to have the highest brand reputational value have implemented an open communication structure featuring a clear line of contact between the ethics and compliance offer and top management.
  • Improve hiring practices: It only takes one misguided individual to cause irreparable harm to an organization’s brand and reputation. Scrutinize all new hires prior to bringing them onboard by performing comprehensive background checks, and thoroughly vet all contractors, vendors and other strategic partners.

Your brand and reputation are more important than ever. Cutting corners or encouraging ethical shortcuts could have disastrous consequences for your organization in terms of reducing your brand value.


Understanding the Differences Between Ethics and Compliance

Whenever there is a discussion of organizational conduct, the terms “ethics” and “compliance” are often mentioned in the same sentence. Ethics and compliance are often viewed as complementary, and in some cases, interchangeable concepts, which might make attempting to distinguish between the two seem insignificant.

However, the ability to understand the difference between ethics and compliance can actually have a major impact on an organization in areas such as training, communications and the culture as a whole. In truth, the separate decisions organizations make regarding ethics and compliance can actually define their business.

What is Compliance?

Compliance generally refers to the adherence to any laws, rules or regulations pertaining to a company or industry for the primary purpose of avoiding financial or legal ramifications. In essence, compliance is external – organizations must follow rules that are promulgated by others or face the consequences. A public entity must obey SEC regulations; a manufacturing operation must abide by environmental laws when disposing of toxic waste; an airline must follow strict safety rules as administered by the FAA.

What is Ethics?

While compliance is relatively straightforward, the concept of ethics is more abstract. Ethics refers to a set of moral principles or values that dictate the way an individual acts or behaves. Thus, ethics is more of an internal mechanism that determines how employees tell right from wrong. Put another way, ethics is what individuals need to consider prior to taking any action that could potentially have negative consequences.

Exploring the Relationship between Ethics and Compliance

Perhaps an easy way to gain an understanding of the relationship between ethics and compliance is to think of it in these terms: while ethics tells employees what they should do, compliance indicates what they must do. While compliance entails following the rules and laws, ethics serves as a guideline for doing what is right regardless of what the rules state.

It is entirely possible to be in compliance while also acting in an unethical manner. Consider the example of product labeling. Many nations now have environmental laws on the books that stipulate that products must be labeled in a certain manner. While failing to comply with these regulations may not necessarily be considered unethical or immoral, it is a violation of the law and could result in substantial fines and penalties.

Conversely, one can make an ethical decision that is not dictated by compliance concerns. For instance, there may not be a specific law mandating that a certain product must be made more environmentally safe or easier to recycle. However, doing so can be viewed as the proper, ethical thing to do.

Ethics and Compliance: Finding the Right Balance

Many companies and the employees that work for them struggle to find the proper balance between ethics and compliance. While a specific action may not violate the law, it may serve the best interests of the employee instead of those of a client or third party. A classic example is the unscrupulous activities of hedge fund managers, mortgage brokers, bankers and other financial professionals that played a prominent role in the onset of the 2008-09 financial crisis. While very few of these individuals received prison terms or were otherwise found to violate any laws, their unethical decisions caused substantial harm to their clients as well as their employers.

The first step in achieving the right balance between ethics and compliance is to take a close look at the current culture of your organization. The senior management team, and by extension, the chief ethics and compliance officer (CECO) bear the responsibility of embedding the desired culture at every level, and ensuring that it reflects the true values and beliefs of the organization. If employees at all levels aren’t on the same page, the executive team has more work to do.

Conduct Separate Ethics and Compliance Training

Training in ethics and compliance at every level of the organization is essential. Separate training programs should be developed and implemented for both areas. With regard to ethics, a key training component is your organization’s code of ethics/conduct, as code training will serve to reinforce your corporate values and clarify what is considered acceptable and inappropriate behavior.

Compliance training should focus on the specific laws, rules and regulations that pertain to your organization and industry. The training should take a risk-based approach and be tailored to the various risk profiles encompassing your staff and organizational structure. For instance, “high-risk” staff members who engage in overseas business transactions should receive comprehensive training in the anti-bribery provisions of the Foreign Corrupt Practices Act.

Both ethics and compliance training programs should also include instructions on how to detect potential violations and how to report them to the appropriate authorities when they occur. In the case of compliance violations, self-reporting to the proper regulatory agency can sometimes mitigate any negative consequences. Likewise, an anonymous reporting hotline for ethical misconduct can lead to early intervention before the situation has a chance to escalate.

In summary, organizations that recognize the difference between ethics and compliance and make them integral components of their culture are more likely to avoid the missteps that could cause significant damage to their reputation and limit their ability to perform at a high level.


Are Your Employees Making the Best Use of Your Reporting Hotline?

Giving your employees access to a reporting mechanism such as third party hotline is an important step toward establishing and maintaining a strong ethical culture. Hotlines provide a variety of benefits including helping to limit the number of incidents of inappropriate behavior, reducing financial losses resulting from fraud and other forms of misconduct and protecting your staff, customers and the public at large against potential wrongdoing. In fact, instituting a reporting hotline is now widely considered to be a best practice for any organization that is truly committed to promoting ethics and integrity.

Why Some Employees May Be Reluctant to Use Your Hotline

While a hotline is important, simply making one available is not enough to ensure its effectiveness – your employees must put it to use to report misconduct when the need arises. But employees are often reluctant to make a report for a variety of reasons:

  • They don’t know about the hotline: Many organizations do not do an adequate job of informing employees about the hotline’s existence. It may receive nothing more than a brief mention in an employee handbook or remain buried in the organization’s code of conduct.
  • Lack of understanding of what constitutes unethical behavior: Some organizations do not do an effective job of teaching their employees about ethics and compliance. If employees are unaware of what constitutes inappropriate behavior, they cannot be expected to recognize and report it when it occurs.
  • Concerns about anonymity: For many who observe wrongdoing, the only way they would initiate a report is if they are not required to reveal their identity. Some employees fear that the hotline provider will not take appropriate steps to protect their anonymity – they simply do not trust giving such sensitive information to someone they do not know.
  • Fear of retaliation: Understandably, many employees do not want to be viewed as a whistleblower due to fear of retaliation. They may have concerns about losing their job, or at the very least, having to deal with a hostile work environment.
  • They don’t believe their report will receive proper attention: Some employees may feel that a third-party provider does not have the appropriate authority to act on their report. They believe their report will end up at the bottom of a desk drawer or simply be discarded.
  • Lack of encouragement by management: In organizations where management fails to set the appropriate ethical tone, employees may view a reporting hotline as nothing more than “window dressing.” In their minds, it makes little sense to report an incident of misconduct when their leaders do not act in an ethical manner or do nothing to attempt to establish a values-based organizational culture.

Ways to Encourage Hotline Reporting

On average, Lighthouse’s clients receive 1 hotline submission per 200 employees per year. Keep in mind that if your hotline is not generating a significant level of activity, your workplace environment may be ethical and employees don’t see the need to use it. However, it could also be that your employees simply are not using it for any of the reasons listed above. Consequently, your organization could still be facing a high risk of unethical behavior. However, you can encourage your employees to make better use of your hotline by instituting the following steps:

  • Ramp up hotline promotional efforts: Increase employee awareness of your hotline’s existence by using vehicles such as posters, newsletter articles and your organization’s intranet. Additionally, hotline use should be incorporated into your ethics and compliance training programs. Regular ethics and compliance training will also enlighten your staff as to what constitutes unethical behavior in your organization.
  • Make it more accessible: Some employees may not be comfortable making a hotline report at work or via telephone. Your hotline should include 24/7/365 availability so your staff is free to access it outside the workplace and offer alternative reporting methods such as Web reporting.
  • Establish strong anti-retaliation policies: Emphasize the fact that retaliation against whistleblowers is against the law and will not be tolerated in your organization. Use your hotline promotional efforts and ethics and compliance training programs to educate your staff regarding your anti-retaliation polices.
  • Elaborate on the investigative process: Train your employees on how hotline reports are actually handled, including the investigative process. This should alleviate concerns about anonymity and confidentiality, while also ensuring your staff that every report will receive prompt and proper attention. Please view our informative whitepaper “Best Practices for Handling an Ethics Hotline Report: Developing Policies and Procedures for Conducting an Effective Ethics Investigation.”
  • Incentivize hotline use: The availability of incentives may motivate some employees to report unethical behavior. Examples of incentives include cash rewards and paid time off. Be certain to qualify the eligibility to receive a reward to minimize occurrences of bogus reports. For example, stipulate that the report or tip and any follow-up investigation must ultimately result in an actual finding of wrongdoing.
  • Setting the proper tone at the top: No reporting hotline or other ethics initiative will produce the desired result unless top management sets a strong example for employees and stakeholders to follow. As a top executive or ethics and compliance professional, it is your responsibility to set the ethical tone for your organization.

To learn more about how to maximize the effectiveness of your organization’s reporting hotline, please view the informative Lighthouse Services whitepaper “Why Reporting Hotlines Are Considered a Best Practice.”


Ethical Challenges in Emerging Markets

“Ethics is the difference between knowing what you have the right to do and what is right to do.”-Potter Stewart, former Associate Justice of the U.S. Supreme Court

As the world’s marketplace continues to become more global in scope, it presents an increasing number of opportunities for multinational companies to expand their operations into potentially lucrative emerging markets. According to, the relative average GDP growth rate for emerging nations such as China, Brazil, Vietnam, India, Turkey and others has been about twice that of the more advanced nations over the past 15 years, a trend that is expected to continue in the foreseeable future.

However, while staking a claim in developing markets can offer access to new profit centers for companies that are struggling to remain viable in a sluggish U.S. or European economy, it can also result in significant ethical dilemmas.

Types of Ethical Challenges Companies Face

Perhaps the single biggest ethical challenge many companies face is gaining an understanding of the various cultural differences. Some companies take a “one size fits all” approach to ethics and attempt to apply their normal corporate standards in new markets. However, this often results in a policy that fails to meet the needs of the market or is met with resistance. These companies quickly realize that, when it comes to ethics, the rules for doing business in emerging markets aren’t necessarily the same as at home.

Another significant area of concern is corruption. In many emerging economies, corrupt practices such as bribery are rampant, and are even an expected method of doing business. While learning to operate without paying bribes in these nations can be difficult, it has become a business imperative as efforts to crack down on violators of anti-corruption laws continue to intensify.

In essence, for companies to avoid ethical dilemmas in emerging marketplaces, they must perform a rather delicate balancing act. In particular, companies must find a way to balance the rapidly evolving global values, standards and norms with the needs, cultures and business practices of the markets in which they wish to do business.

Meeting the Challenge

There are a number of steps your company can take to ensure that you develop and maintain an ethical operation in any emerging market. Here are just a few:

1. Choose intermediaries wisely-Under the Foreign Corrupt Practices Act and the UK Bribery Act, companies can be held responsible for the actions of third-party agents doing business in foreign countries on their behalf. Be certain to thoroughly vet all vendors, resellers, consultants, and others.

2. Develop an ethical reputation-Make it a point early on in your involvement in an emerging nation to establish your company as one that will always act in an ethical manner. This will discourage corrupt entities from attempting to engage in bribery or similar practices when doing business with your company.

3. Practice patience-In many instances, an official may request payment of a bribe to expedite a transaction. By simply declining to pay and indicating your unwillingness to “play the game,” you may find that you will still be able to execute the transaction after a brief waiting period.

4. Build a culture of meritocracy-When staffing your operation in an emerging market, hire based on how individuals will fit into your intended company culture instead of their experience, social connections, or ethnicity. This sends a clear message that all candidates will be judged using a standardized process instead of who they know.

5. Put the law on your side: Just because you choose to play by the rules, it doesn’t always mean your competitors will. According to, companies can often seek remedies against unethical competitors and level the playing field by bringing a case against them under the FCPA or UK Bribery Act. Some local jurisdictions also have monitoring bodies of their own, although local laws are often applied on an inconsistent basis.

To learn more about ways to effectively deal with the challenges posed when doing business in emerging markets, read the article Even the Virtuous Can Thrive in Corrupt Countries at


Nepotism in the Workplace

Everyone has seen it happen. Right from the get-go, that new hire seems awfully friendly with the boss. In fact, they even look a little bit alike.

Nepotism in the workplace is alive and well in 2012. During tough economic times, employers are even more likely to lend a friend or relative a hand by hiring them for a job for which they may or may not be qualified. While there is no “nepotism law” at the Federal level, it is ultimately up to each state to determine nepotism laws, the consequences of nepotism might constitute illegal employment discrimination under Federal discrimination laws.

If an employer hires friends or relatives to the point where they fail to consider people of other races, creeds, sexes or ages, they make be violating Title VII of the Civil Rights Act of 1964. They are, in affect, discriminating against those groups in regard to hiring.

Close personal relationships in the workplace can have a harmful effect on employee morale, lead to claims of conflict of interest, and interfere with an employee’s independent judgment.

And should an employer create workplace conditions that effectively force out an existing employee to make room to hire a relative, the employer could be liable for damages to the terminated employee.

It's all relative

Nepotism can also rear its ugly head when it comes to business decisions such as the hiring of vendors or the purchasing of companies. If shareholders get the feeling that nepotism was involved in such a decision, the fallout can be serious—and it may permanently damage a company’s image.

For example, in 2011, Rupert Murdoch's News Corp was sued shareholders for the alleged "nepotism" of buying his daughter Elisabeth's television production company Shine for more than £400m. According to a March 2011 article in the UK newspaper The Independent, the Amalgamated Bank of New York and the Central Labourers Pension Fund, both shareholders in News Corp, filed complaints that accused the media mogul of treating the business "like a wholly-owned family candy store.”

Such publicity is extremely harmful to a company’s image, as well as that of its leadership. In 2012, the CEO of the large U.S. electronics retailer Best Buy suddenly stepped down among allegations of impropriety. Along with various allegations, the latter included six-figure jobs for family members, according to an article in the MinnPost.

One way companies can combat nepotism in the workplace is to incorporate an anti-nepotism policy into their corporate code of conduct. Yet in order to do so, the entire leadership of the organization must be on board and prepared to abide by the policy themselves.

Instead of a blanket anti-nepotism policy, companies may wish to start with an Employment of Relatives Policy. For a sample policy, click here. For guidelines for adopting a policy on employing relatives, click here.

Finally, if you’re thinking of hiring a friend or a relative for a key position in your company for which you feel he or she is truly, uniquely qualified, and you have questions about the legal implications of such a hire, you may wish to cover your bases by consulting an employment attorney beforehand.





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