Graham Dietz and Nicole Gillespie show how one company faced a behavioural and ethical crisis, and recovered

Trust and ethics complement each other. Indeed, to be ethical is to be trustworthy. A strong reputation for trustworthiness underpins organisational resilience and authenticity.

Such a reputation can provide sustainable competitive advantage. It enables an organisation to attract and retain top talent and establish effective business partnerships and a loyal customer base.

But what happens when trust is violated?

Following a major crisis in integrity or operational competence, employees’ trust in their own organisation needs special attention. Without high levels of internal trust, the process of repairing trust with external stakeholders will be difficult to initiate and sustain, and will lack credibility with the very people who must deliver the “new” organisation.

This topic is a timely one in the UK, with the scandal at News International, as well as live trust issues with the care home, banking and other sectors.

Severn Trent

The case of Severn Trent provides an useful example of a company whose trust and ethics have been challenged, and how they responded. It shows how a company worked to recover its reputation, focusing on how trust was rebuilt among their employees.

In July 2008, Severn Trent was prosecuted by the Serious Fraud Office for “knowingly or recklessly” providing false information to Ofwat, the UK water industry regulator, with respect to its customer service and operational performance data.

In the years preceding the break of the first scandal, its staff had faced humiliating reports in the press and on local TV as their company was accused of being a “corporate fraudster” that was “fleecing” three million customers.

Trust repair

In 2005, shortly after the scale of the deception came to light, Severn Trent swept in a new board, led by Tony Wray, CEO. His thorough investigation into the deception uncovered failures in the company’s ethical culture and procedures, but also highlighted many positives.

“We found really good people [in the departments], we could see their capability … They were good people being badly led,” Wray says. He wanted to maintain and ideally enhance these positive attributes, whilst tackling the problems with the company’s ways of working.

Wray explains: “What [did] we need to do to honour the past? We needed to honour the right things … Then we needed to ask ourselves, what do we want to be? Which is, we will be the best water company in the country, with the highest standards, the lowest charges, and the best people. And then we had to find ways of articulating that.”

To tackle two emotions – shame and pride – the senior management team undertook a series of road shows throughout 2006 in which they visited sites to explain what had happened. These events involved groups of 50 or so employees at a time.

Employees were fearful of the consequences of the scandal, and of senior managers’ motives. There were concerns that some divisions would be sold off as a result. The road shows were an opportunity to ease those concerns, but also to deliver some unsettling messages: “We said to the workforce, ‘we’re guilty’, and staff were not used to hearing things like this,” Wray says.

Deflecting blame

Many employees vented their anger at the original whistleblower, or at the customer relations team, seeking to deflect blame and distance themselves from the scandal.

But Wray saw that the workforce had been, in his words, “institutionalised into doing bad things … It was too easy for people to be in denial and ‘blame’ others without realising that they were probably subject to the same failings in their own actions.”

The senior management team sought to issue a direct challenge to the organisation’s dominant cultural values with both “lean management” in operating processes and the encouragement of teamworking, listening and sharing ideas.

Elaborating on his approach to change, Wray argues: “You will not find a ‘culture change programme’ in place. What you will find is a series of interventions, on ethics, on values, on behaviour”

Wray says that the changes are behaviourally-based, and “founded in values and beliefs”. Processes follow on. He argues that values and processes cannot be separated. “We have to tell our staff they need to do X properly because it’s the right thing to do.”

But, he suggests, staff need to feel the consequences, so there have to be interventions, including coaching and mentoring. There are also consequences for employee compensation, and for new appointments [ie promotion criteria]. “And, if that doesn’t make a difference, then we have to sack them.”

Targeted reforms

The sweeping set of reforms has been comprehensive and targeted, including:

• Ethics training, led by the Institute of Business Ethics, entitled “Between a rock and a hard place”.
• Leadership development, which “majored on ethics and honesty and being straightforward” (Andrew Smith).
• A revised code of conduct, and whistleblowing policy.
• Tighter financial controls, and clearer lines of responsibility and accountability.
• A much clearer corporate governance structure (Severn Trent’s board and that of its parent company are now identical, to ensure thorough oversight).
• “Upskilling” employees to take more responsibilities in their work.
• A suite of 20 key performance indicators to link each board member’s efforts explicitly to the firm’s performance and its values, and to make these efforts visible. The KPIs do not extend to managerial behaviouryet, but this is the long-term plan.

One senior manager feels that the ethics training in particular has given employees the chance to “talk about situations when they felt themselves to be compromised”, and that this was a valuable, bonding experience. Fiona Smith, general counsel for Severn Trent, remarks: “Good operational performance does not come about without moral fibre in place.”

Combating cynics

Staff reactions to the messages about a “new ethical culture” have been mixed, however. Scepticism and even cynicism was initially common, because, as in many organisations, employees had seen plenty of contradictory behaviour regarding transparency and ethics in the past.

One long-standing employee remarked: “Management can delude itself that, by training and internal communications, they can wave a magic wand over employee behaviour.”

Wray disputes this charge vigorously: “We were never deluded. That’s why our programme [of organisational reform] is so deep, and so long, and is based on [changing] values and behaviour. This is a long journey, to change fundamental beliefs, and then behaviour.”

In 2009, Severn Trent won Utility of the Year at the Utility Industry Achievement Awards. For Wray, this was a valuable indicator of progress: “As performance improves, we can celebrate it and people’s pride comes back … We’re starting to get back a sense of excitement about the future of this company.”

His team, and the vast majority of the workforce, are determined to complete the journey. If an organisation aspires to be considered as one that takes ethics seriously,it will need to be trustworthy and to foster trustworthiness in the workplace. Ethics and trust go hand in hand.

Trust crisis management

In Building and Restoring Organisational, Graham Dietz and Nicole Gillespie outline a four stage process for companies to follow in a crisis in order to aid internal trust repair.

Stage 1: immediate responses (first 24-72 hours)

• Acknowledge the incident and any distress caused; communicate all known facts and announce a full investigation.
• Avoid denials where guilt is likely.
• Consider delaying an apology until the investigation is complete and responsibility is clearly understood – unless the organisation’s responsibility for the failure is clearly known.
• Avoid finger-pointing.
• Take precautionary actions against any known causes to protect stakeholders.
• Take actions to support affected stakeholders.

Stage 2: diagnosis – understanding what caused the failure

• Appoint an independent investigative team.
• Prioritise thoroughness, accuracy and a timely report.
• Consider an amnesty to encourage employees to speak up.
• Cooperation and honesty in dealings with investigators.
• Keep staff informed and engaged (if they want to be).
• Highlight the organisation’s strengths when communicating investigation outcomes.
• Consider making the investigation report public.

Stage 3: reforming interventions – making sure the failure cannot happen again

• Apologies and penance are effective responses for trust repair.
• Tackle contributory factors, as well as direct causes.
• Make structural and cultural changes, not just procedural.
• Follow fair processes when sanctioning staff responsible for the failure.
• Strategies for repairing trust internally and externally are inter-connected.
• Undertake reforming interventions voluntarily.

Stage 4: evaluation

• Be accurate, timely, comprehensive and transparent.
• Consider reviewing your experience in public.

 

Building and Restoring Organisational Trust by Graham Dietz and Nicole Gillespie is published by the Institute of Business Ethics.

Dr Graham Dietz is a senior lecturer in human resource management and organisational behaviour at Durham University, UK.

Dr Nicole Gillespie is a senior lecturer in management at the University of Queensland, Australia.