This is a summary of a joint presentation by Jane Mitchell and Ruth Steinholtz at a corporate integrity seminar run by Norton Rose LLP.

There is a virtuous circle of good leadership, ethical culture and financial success. Developing your virtuous circle may require you to be brave.

Sustainable ethical performance is driven by values – deeply held beliefs which inform our decisionmaking – and not by compliance.

Leadership is key

Leaders drive the culture of their organisations  in ways even they are not aware of. They present a mirror to right or wrong behaviour, decide what to fund and what to starve, and influence everyone around them in a myriad of ways.

Think of Enron. They had all the right words in their Code of Conduct but, as Jeff Skilling said, they had an aggressive culture, and he wasn’t joking!

Creating a healthy values-driven culture takes time and can only happen with the commitment of senior management. If there is a gap between what leaders say and how they behave,

employees will sense this and become cynical and disaffected. This is about “walking the talk”: creating alignment between words and behaviour. Employees who cannot “bring their values to work” will eventually be de-motivated.

There is another kind of alignment which links the values that an organisation needs to succeed and the values of the leadership team and the individual values of employees.

The business case is unassailable If an organisation knows which values will fuel success, understands how to develop the culture and has employees who are on the same wavelength – then there is a shared sense of purpose and the business will flourish, financially and in every other way. The more employees feel that the company is going in the right direction and feel comfortable in that environment, the better the company will do, it’s that simple.

This is not a task that you delegate to a compliance department – or to any single department; everyone is part of it. Having a few policies in place will not do it. Every single employee must be involved if you want to integrate a values-driven approach into your business.

Just stating your values is not enough Values are operating at all levels in organisations, but some, “potentially limiting values”, may be causing problems unbeknownst to management. These values can be positive or negative depending on the context (hierarchy, which in some organisations could be stifling creativity and in others be necessary for success, is one example). You have to look at these values and  understand what they are doing in your organisation.

There may be incentives that work against the stated values. Enron was offering bonuses of $5 million. You must ask, do your incentives  relate to stable long-term performance or to short-term boom?

There can be other obstacles. A culture of retaliation is a case in point: compliance will take the view that “we have a whistle-blowing line (so we’re okay)”; but a values-driven culture will go further: “we have a whistle-blowing line and people feel comfortable about raising concerns”.

It all comes back to human behaviour. Gaps in alignment create entropy Entropy is the amount of wasted time, energy and expense created by dysfunctional elements in the culture of an organisation. Entropy can be quantified using certain tools. One can predict, for example, whether an organisation is on the path to self-destruction. This is an indication of the need to focus on values and culture.