Interviews with almost 2,000 employees at U.S. public and private companies of all sizes for the biennial NBES show disturbing shares of workers witnessing ethical misconduct at work -- and tending not to report what they see.  Conflicts of interest, abusive behavior and lying pose the most severe ethics risks to companies today. 

The measurable lack of progress in business ethics should signal a need for company management, boards of directors, policy-makers, investors and consumers to reassess their approach to that challenge, said ERC President Patricia Harned, Ph.D.

"Despite new regulation and significant efforts to reduce misconduct and increase reporting when it does occur, the ethics risk landscape in American business is as treacherous as it was before implementation of the Sarbanes-Oxley Act of 2002," Dr. Harned said.

Over the past year, more than half of employees surveyed had personally observed violations of company ethics standards, policy, or the law.  Many saw multiple violations.  More than two of five employees who witnessed misconduct did not report it through any company channels.

According to Dr. Harned, "There is a strong sense of futility and fear among employees when it comes to reporting ethical misconduct, and that increases the danger to business. More than half of employees who witnessed but did not report misconduct believed that reporting would not lead to corrective action. More than a third of non-reporters feared retaliation from at least one source; but our research shows that having a strong ethical culture virtually eliminates retaliation."
 
"Employees at all levels have not increased their 'ethical courage' in recent years," Dr. Harned said. "The rate of observed misconduct has crept back above where it was in 2000.  And employees' willingness to report misconduct has not improved, either." 

"The good news is that the rate of misconduct is cut by three-fourths at companies with strong ethical cultures, and reporting is doubled at companies with comprehensive ethics programs," said Dr. Harned.

The study found less than 40 percent of employees are aware of comprehensive ethics and compliance programs at their companies.  The programs are largely driven by legal and regulatory compliance, and designed in reaction to past mistakes, Dr. Harned observed. "The fact is, only about 25 percent of companies actually have a well-implemented ethics and compliance program in place, despite their transformative impact," she said.

The NBES also found most employees prefer to report misconduct to a person, especially someone with whom they already have a relationship, rather than to a company "hotline."  Only 3 percent of misconduct reports were made to company hotlines.

As part of the latest NBES, ERC developed The ERC Ethics Risk Index.  It categorizes 18 different types of misconduct by their incidence and whether they would be likely to be reported, and assigns a value to that type of misconduct.  While the Index presents data in a continuum, the projected risk of various types of misconduct falls generally into three categories: severe risk (happens frequently and usually goes unreported), high risk (happens often and often goes unreported), and guarded risk (happens less frequently and may go unreported).
   
In computing the Index, ERC found that:

• Conflicts of interest (employees putting their own interest above their company's), lying to employees and abusive or intimidating behavior posed severe risk to companies this year. 
• Companies faced high risk in several areas, including Internet abuse, misreporting work time, lying to customers, vendors and the public, and discrimination.
• In general, the risks associated with abusive behavior and lying to stakeholders appear to rise with the number of company employees. 

To download the full NBES report, go to http://www.ethics.org/download.asp?fid=91