Executive Briefing

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Executive Briefing
Vol. 55 No. 12

Strong ethical culture helps bottom line; programs for female leaders scarce; more.
12/1/2010 By Dori Meinert

Strong Ethical Culture Helps Bottom Line Nice guys don’t always finish last. A recent study has found that integrity has a tangible impact on corporate performance. Companies with weak ethical cultures experience 10 times more misconduct than companies with strong ethical cultures, according to a survey of about 500,000 employees in more than 85 countries conducted by The Corporate Executive Board in Arlington, Va. In strong ethical cultures, employees are comfortable speaking up about their concerns without fear of retaliation, says Dan Currell, executive director of The Corporate Executive Board’s Legal and Compliance Practice. "Unfortunately, many employees today fear retaliation for reporting misconduct," Currell says. That fear prevents ethical cultures from thriving and prevents businesses from reaping rewards: Companies whose leaders strongly encourage open communication deliver shareholder returns that average 5 percent higher than their competitors’ returns, researchers found. In addition, companies identified as having high-integrity cultures are 67 percent less likely to observe significant instances of misconduct, such as accounting irregularities and insider trading, than companies with low-integrity cultures. The study measures ethical culture by asking employees questions such as whether they are comfortable discussing possible misconduct with their managers and whether they think company officials will respond to unethical behavior. Many employees say they don’t report misconduct because they are skeptical their employers will do anything about it, Currell says. Executives traditionally try to reduce risk by increasing internal controls, but those controls can be circumvented by employees—either for efficiency or personal gain. The Corporate Executive Board study found that companies with strong internal controls didn’t necessarily have lower misconduct levels. To prevent misconduct, corporate leaders should work to ensure open communication between employees and build trust in leadership, Currell says. One challenge is that senior executives think their company cultures are healthier than middle managers and non-managers do, he says. "Within organizations, good news is like a helium balloon. It rises to the

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Executive Briefing

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top right away," Currell says. "Bad news walks around in cement shoes." Hispanics Lag In Retirement Plans Hispanics lagged behind other U.S. workers when it came to participation in employer-sponsored retirement plans in 2009, according to a study by the Employee Benefit Research Institute in Washington, D.C. Forty-nine percent of white workers participated in employersponsored retirement plans last year, compared with 42 percent of black workers and 27 percent of Hispanic workers, the study found.The gap between white and black plan participants disappeared when comparing workers at higher income levels. Of those earning $50,000 or more, 70 percent of white and black workers participated in a retirement plan, but only 57 percent of Hispanic workers with the same income did so. The participation rate for Hispanics is brought down considerably by the habits of first-generation immigrants, says Craig Copeland, the institute’s senior research associate. While 40 percent of U.S.-born Hispanics participated in retirement plans, only 20 percent of Hispanics born outside the United States were enrolled. "Maybe they don’t plan to retire here. Maybe they’re just sending money back to other countries," says Copeland of the newest immigrants. "They may have limited trust in the financial system." The number of U.S. workers participating in retirement plans decreased for the second year in a row, according to researchers who based their work on U.S. Census Bureau data. Among full-time wage and salary workers most likely to have benefits, 54 percent participated in a retirement plan last year, down from 55 percent in 2008 and a high of 60 percent in 1999.

Programs for Female Leaders Scarce While leaders in many U.S. corporations are seeking to increase diversity in their workforces, 70 percent don’t have a clear strategy for developing female leaders, according to a survey by Mercer, a New York-based benefits consultancy. In addition, about 43 percent of the 542 companies surveyed don’t offer any activities or programs aimed at female leaders,

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Executive Briefing

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the researchers found. While 23 percent of the organizations offer some programs, another 19 percent only track the progress of women. Just 5 percent offer a robust program, but 4 percent plan to add programs in the future. The chief obstacles for women seeking to advance within their companies include lack of an executive sponsor, cited by 43 percent of the survey respondents, followed by insufficient breadth of experience (36 percent) and work/life balance (31 percent), the study found. However, when it comes to offering programs to help women advance in the ranks, the solutions being provided by companies don’t always address the problems, says Colleen O’Neill, a senior partner in Mercer’s human capital consulting business. Respondents identified flexible work arrangements, coaching, mentoring, and diversity sourcing and recruiting as the most effective programs for developing female leaders. But "by just offering flexible work arrangements, you’re not going to fix the problem. It certainly helps for more entry into the workforce, but we know that leadership development is a multi-phased process," O’Neill says. The September survey was conducted by Mercer in conjunction with Talent Management and Diversity Management magazines. It recorded the responses of human resource, talent management and diversity leaders at the companies surveyed. Meanwhile, a coalition of global investors is calling on companies around the world to increase representation of qualified women on boards of directors and in senior management. Pax World, Calvert and Walden Asset Management have asked 54 companies for morespecific information about gender balance in their organizations. Security Policies: Problem or Protection? Firewalls are frustrating employees, yet stronger website restrictions appear to be delivering results from a cybersecurity standpoint: A Robert Half Technology survey in August of 1,400 chief information officers at U.S. companies with 100 or more employees indicates that employees denied access to certain websites are frustrated by these restrictions. Although more than 40 percent of chief information officers said they currently field complaints about information technology security measures, these measures have proved to be effective in recent years. From 2006 to 2009, the number of discovered vulnerability threats reported by IT security professionals decreased by roughly 25 percent, according to the annual Cyber Security Risks report by Hewlett-Packard Development Co. Yet the report indicates that some of the most serious IT security issues stem from employees' office use of Facebook, Twitter, WordPress, iTunes and other consumer technologies that company officials

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increasingly use for marketing and communications and that employees tap for personal use. The solution involves striking a balance between effective security and common sense. For example, rather than restricting all or even certain websites, IT security policy authors could place curbs on the time employees spend surfing the web. Employees intent on mitigating firewall frustration should ask why the IT security policy exists and, if appropriate, make a business case for changing the policy, Robert Half Technology suggests. By Rita Zeidner, a former senior writer for HR Magazine.

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