Fostering a culture of ethics and integrity: Beyond Compliance

In an article I wrote several years ago, I compared ethics to a coin toss. When participants in a Japanese study reported results anonymously, they were twice as likely to claim success than those who had to identify themselves..Pretty telling, right? Without accountability and transparency, some people take ethical shortcuts. The good news is that most people don’t, but for banks, the 21 percent of individuals willing to bypass ethics for a seemingly better outcome is a gamble. This potential risk could not be more pronounced than it is today. In the wake of major regulatory shifts and growing uncertainty about what will or will not be enforced, many financial institutions are seeing what looks like a green light for innovation that was previously off-limits. But here's the thing — regardless of what's happening with enforcement, smart leadership teams will keep ethics and integrity front and center because it's simply better for customers, communities, and yes, their bottom line too. For those banks, real ethical leadership isn't about checking compliance boxes. It's about building a place where doing the right thing is part of the DNA of every decision, transaction, and customer interaction — what community banks are known for. This means banks must go beyond compliance and create a genuine culture where ethics and integrity actually matter.Here’s how. Define and communicate your valuesEthics starts with clarity. Your institution needs to spell out what ethical behavior actually looks like day-to-day. This isn't about statements on your website — it's about practical principles that guide real decisions.When you create your ethics code, get specific. Instead of vague phrases like "act with integrity," try something concrete: "We don't push products that don't help the customer, even when those products increase our bottom line."Make ethics a regular conversation. As an example, there are community banks that kick off every team meeting with a quick ethics scenario. These do not need to be anything fancy — just a practical situation that keeps ethical thinking on everyone's radar. And keep the language straightforward. For example: A customer asks for a fee to be waived. They’re not eligible under policy, but they’re friends with your manager, who says to go ahead. What do you do?Banks may also want to consider ditching the legal jargon in their ethics policy and instead include everyday scenarios in plain English. The result? Employees can better understand what is expected of them.Align incentives with ethical behaviorWe recently surveyed over 170 financial institutions and found something interesting: Eighty-five percent see real value in their risk management programs. They don't view them as just regulatory hoops to jump through, but as strategic assets. We should be thinking about ethics the same way.Take a hard look at how you reward people. Are your incentives pushing staff to sell products regardless of whether customers need them? Or do you recognize people for finding the right solutions? Bruce Weinstein, "The Ethics Guy,” pointed out in a recent podcast that banks need to value character just as much as competence. This means spotlighting your ethics champions and making ethical decision-making a real part of performance reviews at every level.Create accountability at all levelsAccountability is key. The most successful institutions don't have different rules for different people. Ethical standards have to apply to everyone, from the newest hire to the CEO.When someone crosses an ethical line, the response should be consistent regardless of their title or performance. I always think of the theory, “fire the brilliant jerk.” While this really refers to high-performing employees who bring morale down, it can also apply to high-performing employees with questionable ethics. It’s also important not to leave ethics monitoring to people with potential conflicts. Set up an ethics committee with diverse voices from across your organization. Create multiple ways for people to report concerns anonymously. Data shows that organizations with good reporting systems catch problems 50 percent faster than those without.Build ethics into decision-makingEthics isn't a side dish — it should be baked into the main course of every business decision. Before making important calls, ask yourself: "Is this legal? Does it match our values? How would I feel if this showed up on the front page of our local paper?"For big decisions, document not just what you decided, but why — including the ethical factors you considered. Getting diverse perspectives strengthens your ethical foundation. Try using cross-departmental teams to spot potential ethical issues in new products that a single department might miss.Foster transparent communicationWhen things happen in the open, unethical behavior has fewer shadows to hide in. Be radically transparent about company performance, challenges and priorities. When people see the big picture, they're less likely to justify cutting corners.Make it safe to ask questions without fear of getting shot down. For instance, banks may want to establish a simple "red flag" system where anyone can raise an ethics concern without worrying about blowback. And when leadership makes tough calls, explain the ethical thinking behind them.Bruce Weinstein makes a good point in his discussions on business ethics — being willing to be vulnerable and tell the truth creates a foundation that spreads throughout your organization. It's contagious in the best possible way.Leading by example is also important. Nothing builds an ethical culture faster than leadership walking the talk. When leaders consistently make ethical choices, people notice. Leaders should openly pass on opportunities that don't align with the institution's values, even profitable ones.When leadership messes up, because we're all human, own it publicly and explain how you'll fix it. Making visible sacrifices for ethical principles sends a powerful message. When leaders accept short-term pain to maintain integrity, it shows your values aren't just fancy words but real commitments that guide action.Provide ongoing ethics trainingEthics training also can't be a one-and-done event. It needs regular reinforcement and practical application. Base your training on real situations your team might face, not abstract concepts. Make it interactive with role-playing and small-group discussions. These approaches stick way better than lectures.You should also consider customizing your training for different roles: Board members need to understand governance-level ethical issues, while customer-facing staff need practical guidance on everyday interactions. One size definitely doesn't fit all when it comes to ethics training.Measure your ethical cultureWhat gets measured gets managed. In addition to ongoing training, take the pulse of your ethical culture regularly to spot areas needing work. Run anonymous surveys asking things like "Do you believe our senior leaders mean what they say?" and "Would you worry about negative consequences if you raised concerns about how we do things?"Track ethics-related metrics — customer complaints with ethical dimensions, policy exceptions, and cases where you've had to protect whistleblowers. Expand your audit scope beyond technical compliance to assess whether decisions actually line up with your stated values.The upside of ethicsFinancial institutions that go beyond checking compliance boxes see real benefits: Stronger customer trust and loyalty, better community reputation, lower regulatory and legal costs, more engaged employees, and less fraud and misconduct all stem from a strong ethical foundation.In today's environment of potentially relaxed oversight, financial institutions face a choice. You can see this as a chance to cut corners, or you can recognize that ethical behavior remains a competitive advantage no matter what's happening with regulations.The winners will be those who see ethics as more than a compliance exercise — it's a fundamental business strategy that creates lasting value for everyone involved. No financial institution should leave ethics up to a coin flip. The stakes are just too high.Michael Berman is founder and CEO of Ncontracts, which develops compliance software for financial institutions.