Everyone knows layoffs are an especially difficult time in a company's life. What's less obvious is that layoffs can cause a second wave of problems, because layoffs are correlated with higher rates of misconduct, including conflicts of interest, insider trading, and sexual harassment. 

Why? One hypothesis is that employees are most likely to feel pressure to "bend the rules" during what the Ethics and Compliance Initiative describes as "periods of organizational change." Another is that employees feel disgruntled and disconnected. 

Given that more than 15,000 tech industry employees were laid off in May alone, it's an important time to look at the connection between company culture and compliance, and take steps to prevent misconduct.

Let's start with the positive news: Companies where employees feel respected and engaged are less likely to have misconduct, and employees are more likely to report issues when they see them. Of course, building a healthy culture doesn't happen overnight. But frequent communications, relevant training, and data-driven decisions will all increase trust during these stressful times and set the foundation for a healthy company culture. 

Talk more 

Layoffs, a recession, and general uncertainty are on your team's mind whether you want them to be or not. Given that uncertainty is top of mind, address it head-on. Otherwise, your team may fill the silence with fear and rumor. As American Express's former CEO Ken Chenault told his leaders during the 2008 financial crisis, "Acknowledge reality, but give hope." 

This is the time for senior leadership to be visible. Your company should be addressing the economic conditions at all-hands and share the likely impact on employees and customers. Employees don't expect leadership to have a crystal ball, but they do want to hear how their leaders are navigating the times.

But top-down communications is only one piece. The single most important thing a company can do to improve culture is invest in frontline managers, because an employee's manager has a massive impact on their experience.

Arm your managers with talking points so that when their team brings up fear, your managers know how to have that conversation. Finally, let managers know how to report potential issues and remind them of their obligation to report misconduct. 

Train the right way

While layoffs are associated with an increase in misconduct, it doesn't have to be that way. Training is a powerful tool companies have to prevent misconduct. In fact, Gartner notes that "Employees who believed they received the right amount of information following a career moment were 62 percent more likely to report misconduct than those who were neutral."

Unfortunately, not all training is effective. In fact, most compliance training is really bad. Gallup, for example, shows that 90 percent of employees can't tell the difference between training and not training. Given training's power to prevent misconduct, this is a huge miss.

What is effective compliance training? The Department of Justice advises companies on ways to make compliance training truly effective:

  • Be risk-based, meaning specialized and additional training goes to high-risk employees

  • Address previous issues that happened at the company

  • Measure effectiveness, meaning monitor training's impact on employee behaviors 

Get data so you have a "company EKG"

While the DOJ advises companies to measure the effectiveness of compliance training, it's actually quite hard to get a real pulse on how your team is feeling. But you can start with some simple surveys sent out on a regular cadence throughout the year to monitor the ethical health of your company. 

If your company just went through layoffs, and you don't already have a benchmark, use these questions to get a sense of where your company--and smaller individual high-risk units inside it--is now. Look for improvement in a few months on these areas: 

  • I know how to raise a concern
  • I am worried that if I raise a concern, I will face retaliation
  • The company behaves in an ethical manner
  • My manager strongly encourages their team to behave in an ethical manner

Trends over time, and variations across teams and managers are really important to dig into. If your company, as a whole, is comfortable reporting incidents, but you have one team that has really low "willingness to report" scores, that's where you may want to prioritize coaching and engagement. 

With a challenging economic environment, it can be tempting to think of compliance as low on the priority list. But this is exactly the time to double down on messaging around ethics and inclusivity. These preventive steps--proactive communications, risk-targeted training, and data-driven decisions--can ensure your company emerges from today's hard times even stronger than before. Investors, customers, and employees will trust your team.