Fostering an ethical organization from the bottom up and the outside in

Despite the best efforts of corporate compliance officers, boards of governance, auditors, and regulators, corporate misconduct continues to plague our markets. In this thought-provoking installation of Accounting Matters, we argue that efforts to fight fraud and other forms of corporate misconduct have failed, in part, due to the systematic approach employed toward a problem that is irregular, complex, and extends well beyond the boundary of the firm. By drawing upon research from the field of behavioral ethics to suggest a new approach that does more than just stress formal control systems, we illustrate how executives may strengthen organizational ethics through informal practices that work from the ‘bottom up’ and the ‘outside in.’ Our review includes practical recommendations regarding how to create shared responsibility for ethical leadership, how to empower employees to achieve both economic and ethical ends, how to enlist the aid of key stakeholders in identifying problems before they grow and spread, and how to redesign compliance practices to address the complex nature of corporate misconduct.