Companies Cut Costs, Employees Cut Ethical Corners

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Do enterprise cost reduction efforts cause ethical misconduct among employees?

This question poses a potentially troubling connection … and a new survey report provides a dispiriting answer: quite possibly.

The report is an addendum to the 2009 Ethics Resource Center's recent update to its ongoing National Business Ethics Survey, which I blogged about here.

Here's the jarring introduction to this research brief:

"In order to address changing needs and to weather financial struggles, companies often have to make difficult decisions that impact employees' lives at — and outside of — work.

"Companies use a variety of tactics (adjusted work schedules, layoffs, reductions in compensation and/or benefits, hiring freezes, early buyouts, production slowdowns, and plant closures). Research conducted as a part of the 2009 National Business Ethics Survey reveals that all of these tactics are related to significant increases in the number of employees observing misconduct."

The five-page brief offers five findings and five related take-aways based on an analysis of responses to the Business Ethics Survey data.

The first finding indicates that compensation and benefits reductions and pared-back work schedules are the two cost-reduction measures associated with the largest increase in the percentage of employees observing misconduct (which is defined in the larger study as 27 different types of specific behavior). The related take-away advises executives and managers to monitor attempts by employees affected by these cost-cutting measures to “take back” what they feel they deserve.

And, really, that Boy Scout-esque guidance qualifies as the overall take-away from this information: “Be prepared.”

Cost-cutting is a periodic fact of life at the vast majority of companies, if not all of them – particularly in our age of volatility. Yet, being prepared comes at a cost.

If ethics communications and training activities are most necessary and perhaps most valuable before and during cost-reduction efforts, these activities ought to be among the last “expenses” on the chopping block.

At the vast majority of companies, I'd wager this is not the case. If and when the Ethics Resource Center produces research comparing the cost of reactive ethics efforts vs. the return on investing in proactive ethics strategies, I'll be the first to alert you. ###

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GRC expert Eric Krell supplies the Business Finance community in-depth articles and commentary examining governance, risk, and compliance.

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