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Strategic Culture Framework to Predict Risk

Predicting Risk - A Strategic Culture Framework for the C-Suite

Historically, business and ethics had a somewhat antagonistic relationship. The view that corporate agents were only responsible for profit encouraged institutions to keep their mandate narrowly focused on shareholders' expectations.

This, in turn, led to a dangerous confirmation bias: on the one hand, Corporate Social Responsibility and ethics advocates became increasingly convinced that business, having profit as its only objective, could not be ethical. On the other hand, corporate agents became concerned that environmentalists and regulators might be out to get them and curb their freedom.

As companies started facing increasing complexity and change, the costs and missed opportunities of a mandate designed to only meet shareholders' expectations grew apparent. Contradicting the acquired belief that ethics and business partake in a zero-sum game, the pattern of ethical failures of the past 20 years has made it clear that siloing ethics and business practices are extremely costly.

As ethical risk has ratcheted up, organizations have had to take a closer look at the root causes of corporate failures. The idea that malfeasance is simply authored by a few rogue employees does not square with the type of systemic failures that have unfolded in recent years. Although a rogue individual can, in some cases, do significant damage, framing the issue in terms of "a few bad apples" is neither accurate nor has it actually helped institutions mitigate risk.



For starters, people do not operate in a vacuum. That is, it is difficult to explain how bad apples get to do what they want despite the existence of various lines of control-policies and rules, peer pressure, behavioral norms and expectations, performance evaluations, and other formal and informal mechanisms. Though the overall organizational context may not be actively "conspiring," the cradling of certain beliefs, biases and expectations can go a long way in diffusing responsibility and letting bad actors operate without checks and balances.  

Plenty of behavioral insights show that there is far greater risk in regular people being nudged toward a slippery slope by the wrong context than in rogue sociopaths starting a disastrous domino effect. Given the systemic nature that most ethical failures display nowadays, the argument of "a few bad apples" is hardly enough to exempt senior leaders from the obligation of providing effective oversight and guidance.

Finally, so long as organizations continue to believe that risk resides in the potential actions of a few, they forego the opportunity to build the right type of organizational context. A context (i.e., culture) that makes it harder for people to choose the wrong course of action and easier for them to act as engaged organizational citizens.

Mapping business to ethics and ethics to business should be a top priority for organizations not just to avoid unnecessary costs, but as part of their long-term planning. Since very few choices entail ethical neutrality nowadays, it is likely that people will feel compelled to take an active stand based on their personal ethics when it comes to purchasing, choosing an employer, staying engaged at work, and acting as an ambassador. This is why ethical issues have spilled over from the purview of professional activists to become the object of daily conversations.

Upon discovering that customers might be more likely to buy from ethical companies and that candidates and employees might find it easier to associate themselves with ethical institutions, organizations may open up to the idea that the relationship between ethics and business has significantly fewer constraints and more opportunities than what had been traditionally thought. The fact that business leaders like Larry Fink, Mark Benioff, Paul Polman and others have taken action to leverage ethics for business growth is a telltale sign of this new trend.  

"Fostering a strong ethical culture is more than a responsibility for business today; it is the only way organizations can build a sustainable competitive advantage."


This new landscape forces companies to look more closely at their ethical orientation. And this is how SAI Global's Strategic Culture Framework (SCF) makes a unique contribution. The SCF highlights the specific systems, norms, and mindsets that organizations should focus on to fully map the way ethics and business relate to each other in the organization.

There are two cultural dimensions that are especially important to reduce risk and increase ethical growth according to the framework. 

  • Delegation of Ethical Dilemmas – The extent to which the culture creates dilemmas and leaves them unaddressed
  • Ethical Capacity The resources, practices, and resilience that affect how people in the organization respond to ethical challenges

As highlighted in the SCF, the relationship between business and ethics extends beyond talk (e.g., "Integrity is one of our values") to focus on the actual "walk" (e.g., how and for what people are rewarded; what is implicitly demanded of them). When fully mature, this relationship characterizes a work environment that supports employees in a variety of ways as they engage with conflicting priorities and contradictory stances.

For example, reducing dilemmas is not simply about taking time to acknowledge how key decisions are consistent with corporate values, but also about reflecting on the ways that decisions may fail to fully integrate ethics and business, and ways that deeper integration can be sought out going forward (e.g., which actors, which input, which timeline, which goals, which indicators of success).

The SCF enables a fundamental reframing, helping organizations determine whether ethics practices have merely been superimposed upon business practices rather than being fully married to them. It is by addressing the contradictions that define internal processes and operations, the conflicting demands placed on stakeholders and the gap between what is said and what is done, that the framework aptly highlights both risk and potential for ethical performance. It is through this reframe that organizations can discover foregone opportunities for sustainable growth and long-term resilience.


To learn more about SAI Global's Strategic Culture Framework, listen to our podcast with Tom Fox, where we discuss the report and what it means for the ethics and compliance community. This hour-long conversation is available as five short episodes, which you can access on iTunes and YouTube. 

To download the full report, click here



Guest post by Caterina Bulgarella

Caterina Bulgarella is a highly experienced leader with 15 years of advisory work in the field of culture, ethics, leadership development, and human capital metrics. Caterina holds a Ph.D. in Organizational Psychology, and M.A.s in Personnel Psychology and Industrial/Organizational Psychology from New York University (NYU) and is currently serving as an adjunct professor in the Industrial/Organizational Psychology Master Program at New York University, where she teaches graduate courses in organizational behavior.