Library of Congress Cataloging-in-Publication Data ISBN Ethics Resource Center.

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2 Library of Congress Cataloging-in-Publication Data ISBN This report is published by the Ethics Resource Center (ERC). All content contained in this report is for informational purposes only. The Ethics Resource Center cannot accept responsibility for any errors or omissions or any liability resulting from the use or misuse of any information presented in this report Ethics Resource Center. All rights reserved. Printed in the United States of America.

3 The Ethics Resource Center (ERC) is America s oldest nonprofit organization devoted to independent research and the advancement of high ethical standards and practices in public and private institutions. Since 1922, ERC has been a resource for institutions committed to a strong ethical culture. ERC s expertise also informs the public dialogue on ethics and ethical behavior. ERC researchers analyze current and emerging issues and produce new ideas and benchmarks that matter for the public trust. For more information, please contact: Ethics Resource Center 2345 Crystal Drive, Suite 201 Arlington, VA USA Telephone: FAX: Website: ethics@ethics.org

4 Sponsors The National Business Ethics Survey of the U.S. Construction Industry was conducted with the generous support of: Sponsors Construction Industry Ethics and Compliance Initiative Reed Construction Data American Society of Civil Engineers American Road and Transportation Builders Association The Associated General Contractors of America The Travelers Indemnity Company Bechtel Corporation The findings and conclusions of this report are those of the Ethics Resource Center alone and do not represent the views of the corporate and individual sponsors of this research project. iv 2013 ETHICS RESOURCE CENTER

5 Advisory Group John P. Carpenter Assistant General Counsel, Kiewit Corporation George J. Fadool, P.E. Chief Ethics and Compliance Officer, Skanska USA Inc. Steven Ritchie Vice President Strategy and Business Development, Reed Construction Data James M.F. Rohrbach Vice President, F.A. Rohrbach, Inc. Richard Schrader President, RASchraderLLC Chairman, (Retired) Parsons, Brinkerhoff, LLC Member, Ethics Resource Center Board of Directors Tom Smith Deputy Executive Director & General Counsel, American Society of Civil Engineers 2013 ETHICS RESOURCE CENTER v

6 About this Study This study has been undertaken as a part of the National Business Ethics Survey (NBES) body of research, conducted by the Ethics Resource Center (ERC). NBES generates the U.S. benchmark on ethical behavior in corporations. Findings represent the American workforce in the private sector. ERC has fielded the biennial NBES since 1994, providing business leaders a snapshot of trends in workplace ethics and an identification of the drivers that improve ethical workforce behavior. With every report, ERC researchers identify the strategies that business leaders can adopt to strengthen the ethics cultures of their businesses. In this version of the study, ERC expanded its NBES research to include a look into the construction industry. The survey is a representative sample of employees working in the non-residential construction industry within the United States. Responses reflect the views of employees in organizations that serve as general contractors, subcontractors and program managers in the industry. For more information about sampling and resources, please see the methodology section. To view past issues of the NBES and other related reports, please visit our website at vi 2013 ETHICS RESOURCE CENTER

7 Foreword The purpose of this survey is to establish a baseline for the state of ethics within the construction industry, by gauging the extent to which employees report that the current practices of their employers reflect a strong commitment to integrity. Importantly, this survey has been undertaken with the input of leading construction companies and related associations in the industry. ERC s past research has shown that when industry leaders seek to identify their emerging ethics and compliance issues, and when they work together to leverage the findings to identify priorities and develop benchmarks by which to measure progress, they can and do improve their conduct. Based on our experience in working with the construction industry on this survey project, and given the conversations we have witnessed among industry leaders about their plans to address the challenges identified herein, ERC looks forward to seeing similar improvement in the construction industry in the days ahead. CASE EXAMPLE: COLLECTIVE EFFORTS IMPROVE CONDUCT When a group of companies come together to identify and address their ethics issues, they can and do make a difference. For example, in 2005 a group of 17 companies within a single industry agreed to use ERC s metrics to identify their ethics/compliance challenges. Once data was collected, the group regularly met to compare results and discuss best practices. They continued to collect data within their individual organizations and benchmarked against each other. Each company learned from their peers, and together they raised the bar for their industry. Over time, the industry was able to reduce perceived misconduct by 24 percent ETHICS RESOURCE CENTER vii

8 Methodology Since 1994, the Ethics Resource Center (ERC) has fielded the National Business Ethics Survey (NBES), a nationally representative survey of employees at all levels, to understand how they view ethics and compliance at work. The survey of the U.S. construction industry employees is a focused NBES study of general contractors, subcontractors, and program managers who work in the non-residential construction industry. The awareness and opinions of employees at all levels and in all functions within companies were captured to reveal real-life views of what is happening within these businesses and the ethics risks they face. Over the years, ERC has polled and reported findings on more than 23,000 employees through our National Business Ethics Survey research. Between May 4 and September 15, 2012, individuals from the Reed Construction website were invited to participate in the study. Between September 4 and September 20, 2012, individuals from panels managed by Precision Sample, LLC were invited. In total, 6,041 invitees arrived at the survey welcome page. Review of the data revealed that 3,849 respondents did not answer all questions or else did not meet the qualifying criteria for participation, leaving 2,192 cases for consideration. Of these cases, nine responses lacked sufficient, useable data to be included in the analysis. These cases were removed from all analysis, meaning that 2,183 responses a were from employees who met the following criteria. Participants in the NBES of the Non-residential U.S. Construction Industry were 18 years of age or older; currently employed at least 20 hours per week for their primary employer; and working for a U.S.-based, nonresidential, construction company. Self-employed general contractors, project managers, and self-employed sub-contractors working in an office were screened out from the survey. This was done in order to ensure that data were reflective of individuals who were in organizations that potentially could have an ethics and compliance program, or individuals who would be expected to behave according to ethics and compliance programs maintained by an organization hiring or contracting with them. Data were weighted according to three factors: Age, Education and Sex, according to methods established by ERC in 2007, and per their representation in the civilian labor force defined by the US Census: Bureau of Labor Statistics. Additionally the data were weighted by Occupation (Subcontractor and General Contractor/ Project Manager). Using information from the Standard Occupational Code, data were weighted by Subcontractors (comprising 73.1 percent of the construction Population) and General Contractors/Project Managers (Managers/First-line Supervisors and Inspectors comprising 26.9 percent of the construction population). Individuals self-identified as members of these groups based on the following definitions: a. After weighting to adjust for sex, age, education, and general contractor, subcontractor, program manager; this number adjusted to 2,180 valid responses. Results for the survey are reported according to these weighting factors. viii 2013 ETHICS RESOURCE CENTER

9 Methodology General Contractor or Prime Contractor: Responsible for the day-to-day oversight of the construction project and management of vendors and trades. May or may not self-perform some portion of the work and may subcontract some portion of the work. Subcontractor: An individual or business that performs part or all of the obligations of another s contract. Most often contract with a General Contractor or Prime Contractor to perform a portion of the work. Program Manager: Overall management of the conceptual, pre-construction, and post-construction phases of a project. Based on the input of our Advisory Group, the survey sample consists of 43 percent who were identified as craft and 57 percent who self-identified as non-craft b ; 78 percent of the sample identified as being part of a union, guild, or a collective bargaining agreement. Among General Contractors, Subcontractors and Program Managers, craft and noncraft employees were distributed in the following ways. Craft Non-Craft General Contractors 54% 46% Subcontractors 60% 40% Program Managers 20% 80% In addition, 50 percent of the overall sample is employed by organizations with 2-24 employees, 35 percent by organizations with employees, 9 percent by organizations with 500 or more employees, and 6 percent were selfemployed individuals. Invitees participated via an online survey (using online panels and communities). All were assured that their individual responses to survey questions would be confidential. The sampling error of the findings presented in this report is +/- 2.1% at the 95 percent confidence level. Survey questions and sampling methodology were established by ERC; data collection was managed by Reed Construction and Precision Sample, LLC, and Lock Media Services, Inc. Analysis by ERC was based upon a framework provided by the Federal Sentencing Guidelines for Organizations, the Sarbanes-Oxley Act of 2002, and professional experience in defining elements of formal programs, ethics culture, risk, and outcomes. For a detailed explanation of methodology and the methodological limitations of this report and demographic information on survey participants, visit b. Craft employees are those who work in trades such as Builder, Electrician, Painter, Remodeler, etc.; and non-craft are those who work in functions such as Administration, Engineer, Program Manager, Superintendent etc. For a list of craft functions, please see the Appendix ETHICS RESOURCE CENTER ix

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11 Table of Contents Section 1 Executive Summary Section 2 Why Care About Business Ethics? 2 6 Blueprints for Success: Model of an Ethically Healthy Organization Section 3 Overall Industry Findings Section 4 Analysis by Company Type & Employee Group Company Characteristics: How Company Size, Ownership, and Type of Work Influence Ethics Employee Characteristics: Exploring How Perceptions Differ Between Groups Impact of Management Level Section 5 Recommendations Appendices

12 1. EXECUTIVE SUMMARY No industry in America is immune to ethics challenges. In truth, certain industries are just inherently more at risk for facing ethics issues depending on the kind of work they do. The construction industry is one such industry, especially given the contexts in which companies conduct business, the safety risks that are inherent to their work, and the performance pressures they face. This risk is evident in the feedback provided by employees in the construction industry, especially when compared to the U.S. national average. More construction employees indicated that they feel pressure to compromise standards; they see more misconduct; and when they report wrongdoing to management, they are far more likely to experience retaliation for having done so. At the same time, however, the construction industry set a new standard for Corporate America with regard to employee reporting. Employees in the construction industry reported wrongdoing more frequently than any other group of employees in the 19 year history of the ERC s National Business Ethics Survey research. CONSTRUCTION INDUSTRY COMPARED TO U.S. AVERAGE* * Pressure refers to the employees perceptions that they need to compromise the standards of their organization or the law in order to do their job. Misconduct includes violations of the law or company standards that employees have personally observed in their workplace within the past 12 months. Reporting refers to the percentage of incidents of misconduct that were reported to management. Retaliation is retribution exacted by co-workers or managers against an employee who has reported workplace misconduct ETHICS RESOURCE CENTER

13 EXECUTIVE SUMMARY One explanation for these findings is the nature of construction work itself. Given high expectations to finish a project on time and under budget, pressure is inherent to the work that construction companies undertake. Not surprisingly, then, when employees say they feel pressured to compromise standards at work, the reasons are most often directly related to the job itself (e.g., adhering to a project timeline, or keeping a project within budget). And 94 percent of construction employees who felt pressure to compromise standards also observed misconduct in the past 12 months. This is an area for further investigation for industry leaders. It is also the case that the ethics and compliance issues of the industry were not limited to work in the construction company office. In fact, the home office was often a source of support. Employees were more likely to observe misconduct on a project site than in their company s offices, but when workers reported the wrongdoing they witnessed, they were more likely to report it to their supervisor at their company, not their manager on the job site. Not surprisingly, then, when retaliation took place against the employee who reported, it tended to occur in the company office where the report of misconduct was received. Noticeable Efforts Being Made Despite the challenges facing them, the construction industry has taken steps to encourage ethical conduct and their efforts have made a difference. ERC s research has shown that, regardless of the industry, when business leaders take steps to encourage ethical conduct, positive outcomes result (see page 10). This is certainly true of the construction industry; when asked about their companies efforts to encourage ethical conduct, more than three out of four employees (80 percent) working in the industry deemed it successful. This is higher than the U.S. average, where only 70 percent of employees had such positive impressions. Several important benefits stood out as a result of the efforts taken by these companies to encourage ethical conduct. A predominance (85 percent) of employees say they consult their company code when they need guidance regarding an ethics issue, and nearly eight in ten (78 percent) feel prepared to address ethics issues when they arise. Additionally, a similar percentage of employees in the industry say that their supervisors provide them feedback on their conduct, and nearly eight in ten say that they can raise concerns to their managers without fear of retaliation ETHICS RESOURCE CENTER 3

14 EXECUTIVE SUMMARY 82% 85% 77% 78% 71% 77% 65% 80% Culture in business, which essentially refers to the way things are done around here, is comprised of everything from how employees dress to how they approach customers and interact with their bosses. Consult company standards and policies when necessary Feel prepared to address ethics issues that arise Agree supervisor gives positive feedback for ethical behavior Can raise concerns to mgmt. without fear of retaliation US Average Construction Employees in the construction industry also have positive views of their companies ethics cultures, particularly with regard to the examples set by top management and supervisors. CONSTRUCTION EMPLOYEES ARE MORE POSITIVE ABOUT CULTURE & MANAGEMENT 80% 60% 53% 61% 62% 72% 61% 69% 55% 56% 40% 20% Culture Top Management Commitment Supervisor Commitment Nonmanagement Commitment US Average Construction Employees views about ethics also varied based on the characteristics of their com ETHICS RESOURCE CENTER

15 EXECUTIVE SUMMARY pany, the context in which they work, and their own personal backgrounds. In most cases, these groups displayed patterns that were different from the norm. Some key insights from the survey included the following: The larger the company, the more likely employees were to face pressures to compromise standards, observe misconduct, and experience retaliation for reporting wrongdoing; yet In the largest organizations, ethics and compliance programs were more likely to be viewed as effective, and employees were more willing to report wrongdoing. Employees of general contracting companies were similarly more likely to experience pressure to compromise standards, and they were also more likely to experience retaliation than employees in other companies; yet Employees in general contracting companies were also more likely to say that their company has a strong ethics culture and an effective ethics and compliance program in place. Three types of employee groups stood out as being more at risk from an ethics perspective. Union members, craft employees and middle managers experienced a heightened amount of pressure to compromise standards, and they were also more likely to feel they had been retaliated against for reporting wrongdoing. Yet all three groups were more likely to step forward to report misconduct when they observed it. Finally, consistent with other companies and industries throughout the United States, there are steps that construction companies can take to improve the conduct of employees in their organizations. The results of this survey revealed that when construction companies build strong ethics cultures and they implement effective ethics and compliance programs (based on the elements outlined in the US Federal Sentencing Guidelines for Organizations), they have far better ethics outcomes than their peers. Employees felt less pressure, observed less misconduct, engaged more on the job, and they expressed more positive views of their company s commitment to ethics. Top managers and immediate supervisors are critical to the success of these ethics and compliance efforts. When leaders make a concerted commitment to ethics in their organization beyond compliance employees take notice and follow suit ETHICS RESOURCE CENTER 5

16 2. WHY CARE ABOUT BUSINESS ETHICS? As many leaders in the construction industry already know, a commitment to workplace integrity is not only the right thing to do it makes good business sense. But just how do ethics and compliance efforts make a difference? This section is dedicated to making the business case for ethics and compliance programs in the construction industry. The Risk New ethics and compliance issues emerge every day for corporations, especially when the nature of their work is both high-risk and highly-regulated. The construction industry is certainly no exception. Often tasked with complex projects with limited timelines and budgets, construction companies operate in a high-pressure environment. Compliance with environmental, safety, and quality standards are constant demands. And the project sites for construction work are carefully orchestrated symphonies of general contractors, subcontractors, project managers and local tradespersons who are sometimes collaborators, and sometimes competitors. Each is concerned about the integrity of their work on the task at hand, but also concerned for the protection of the business interests of their company. Given this complexity, watchdog groups have observed that the construction industry is high risk for corruption, particularly because they often are called upon to operate in unstable economic environments with difficult regulatory oversight by sometimes unpredictable public officials. Not surprisingly, given the tenuous environments in which they work, ethics and compliance issues do sometimes occur. Depending on the exact nature and frequency of the misconduct, employees who break the rules hurt morale, reduce efficiency and profitability, and expose the company to legal liability. Under U.S. law 1, companies are responsible for their employees actions. If the misconduct is serious enough, such as a major fraud or rule-breaking that damages public safety, a construction company can suffer significant reputational damage once problems become publicly known. In some instances, significant misconduct can affect access to capital markets, drive down stock price, and/or force a company to pay a premium for loans and debt financing. There is much to lose when wrongdoing takes place. 1. Per chapter 8 of the 2011 Federal Sentencing Guidelines Manual: Organizations can act only through agents and, under federal criminal law, generally are vicariously liable for offenses committee by their agents. For additional information, see ETHICS RESOURCE CENTER

17 WHY CARE ABOUT BUSINESS ETHICS? WHY CARE ABOUT BUSINESS ETHICS? Mitigating Risks Fortunately, there are steps that companies can take to reduce the likelihood that misconduct will occur. In 1991, the U.S. Sentencing Commission presented the Federal Sentencing Guidelines for Organizations (FSGO), establishing for the first time a uniform framework for punishing corporations that broke the law. It also offered incentives for companies to establish effective ethics and compliance programs (and encouraged self-policing) at every level of the organization. According to the FSGO, in order for a company s compliance and ethics program to be considered effective, they must show an effort to implement seven steps recommended in the Guidelines. These seven steps have become the fundamental framework for U.S. corporations. OUTLINED IN CHAPTER EIGHT OF THE FSGO ARE SEVEN VITAL CRITERIA FOR CREATING AN EFFECTIVE COMPLIANCE PROGRAM: 1 Compliance 3 Due 5 Reasonable standards and procedures reasonably capable of reducing the prospect of criminal activity 2 Oversight by high-level personnel care in delegating substantial discretionary authority Effective communication and training to all levels of employees steps to achieve compliance, which include systems for monitoring, auditing, and reporting suspected wrongdoing without fear of reprisal Consistent enforcement of compliance standards including disciplinary mechanisms 7 Reasonable steps to respond to and prevent further similar offenses upon detection of a violation These criteria are meant to be a guide, and do not provide specific details about implementation of these elements. The U.S. Sentencing Commission explains they hope this will allow more flexibility for organizations, in that they can tailor their programs to fit their particular situations. For more information, please see ETHICS RESOURCE CENTER 7

18 WHY CARE ABOUT BUSINESS ETHICS? Importantly, not only do the FSGO provide incentives for companies to establish ethics and compliance programs, they actually make a difference. ERC s research has shown that when an organization follows the FSGO in implementing a program, they enjoy several very positive outcomes. BETTER OUTCOMES FOR THOSE WITH WELL-IMPLEMENTED PROGRAMS 2 Pressure 25% 16% Observed Misconduct Did NOT Report 17% 62% 52% 56% DID Report 44% 83% Experienced Retaliation 36% 37% No Well-Implemented Program Well-Implemented Program In other words, not only do the FSGO mitigate penalties if wrongdoing should occur, an effective program based on the FSGO actually reduces the likelihood that wrongdoing will take place at all. 2. Based on data from ERC s 2011 National Business Ethics Survey (NBES). Please see ETHICS RESOURCE CENTER

19 WHY CARE ABOUT BUSINESS ETHICS? State of Programs in the Construction Industry Unfortunately, in the construction industry, fewer than half (45 percent) of employees in this study indicated that their company has a strong, effective ethics and compliance program that is in alignment with the FSGO. FEWER THAN HALF BELIEVE THEIR COMPANY HAS A WELL-IMPLEMENTED ETHICS & COMPLIANCE PROGRAM 3 50% 45% 5% All four program elements Some program elements No program elements Clearly, there is room for companies in the construction industry to strengthen their ethics and compliance efforts. The business case is clear: an effective program not only mitigates the consequences for wrongdoing that may occur, it reduces the likelihood that wrongdoing will take place. Further evidence of the business case for ethics/compliance can be found in the Blueprints for Success section on the next pages. 3. ERC inquired about the presence of a limited number of program elements (e.g. supervisor provides positive feedback for ethical behavior, employee feels prepared to handle ethics issues, employee would not look the other way if witnessed questionable behavior by employer, employee can raise concerns to management without fear of retaliation) that are generally accepted as a part of the FSGO. Had ERC inquired about all of the metrics associated with an FSGO-based program, this number would likely have been lower ETHICS RESOURCE CENTER 9

20 BLUEPRINTS FOR SUCCESS: Model of an Ethically Healthy Organization Like every industry, America s construction companies have been confronted with an array of ethics challenges, but their fate is not carved in stone. By implementing effective, comprehensive ethics and compliance programs, companies can reduce their ethics risk and prevent future issues, as well as resolve current issues they may be faced with. A clear model for building an ethically healthy organization can be found in data from the 2011 NBES and past ERC research. If industry leaders take the initiative to implement effective ethics and compliance programs, they will be on their way to a healthier place of work. This means: fewer employees will feel pressure to compromise the standards of the organization, and even less will witness misconduct at work. Environments that foster strong ethical cultures have also been shown to have lower rates of retaliation against those who do report. DRIVER 1 Well-Implemented Program DRIVER 2 Strong Ethical Culture OUTCOMES Reduced Pressure for Misconduct Decrease in Observed Misconduct Increased Reporting of Misconduct Reduced Retaliation for Reporting Where it fits GOAL Reduced Ethics Risk Reduced E Where Effective Ethics & Compliance Programs Exist, Strong Ethical Culture Will Follow Where it fits in the model The message is not necessarily a new one from ERC, but it continues to be one of the most pressing a well-implemented ethics program is vital when a company is looking to promote a strong culture. Research 4 shows that when employees feel their organizations have strong programs in place, they are more likely to view their workplace as having a strong ethics culture. A strong culture can be identified by many characteristics, including: Drivers 1-2 Employees feel comfortable approaching management without fear Employees view management as trustworthy Peers are committed to supporting one another in doing right. Supervisors reinforce ethical behavior NBES data show a significant difference in employee perception of strong culture based on the effectiveness of the program in place at their company ETHICS RESOURCE CENTER

21 As previously mentioned, employee behavior improves when a company s culture is strong. There are fewer instances of observed misconduct, as well. Where a company had strong ethical cultures, only 42 percent of employees observed one of the 34 types of misconduct asked about in the survey. In stark contrast, companies with weak cultures, 94 percent of construction employees said they witnessed misconduct. What truly drives an ethical culture is tone at the top, when ethical leadership is in place and commitment to ethics and integrity is part of the normal dialogue. FEWER OBSERVE MISCONDUCT IN STRONG ETHICAL CULTURES Employees Who Observed at Least One of the 34 Types of Misconduct 94% 60% 54% 42% Weak Weak Leaning Strong Leaning Strong Culture Strength Programs + Culture = Reduced Ethics Risk Where it fits in the model It is a fairly simple equation, with results backed by research. Strong ethics programs paired with strong in the model ethics cultures produce substantially better outcomes than in weaker ethics environments. With the prospect to boast a more engaged workforce, less pressure and misconduct, higher employee reporting, and fewer instances of retaliation, it s clear why the industry wants to work toward this goal. STRONG FSGO-BASED PROGRAMS IMPROVE WORKPLACE ETHICS 5 All Drivers thics Risk Pressure to compromise standards 22% 39% Observed misconduct 43% 89% Observe retaliation against reporters 17% 31% Did NOT report misconduct 3% 50% Weak Program and Culture Strong Program and Culture 5. Based on data from ERC s 2011 National Business Ethics Survey (NBES). Please see ETHICS RESOURCE CENTER 11

22 3. OVERALL CONSTRUCTION INDUSTRY FINDINGS Employees in the construction industry see both positive signs and areas for growth when it comes to ethics and compliance in their workplaces. In this survey, ERC gathered information around several key metrics that our research has historically shown as being critical metrics for the ethics of workplaces: 45 Pressure to compromise standards or the law in order to do one s job; Observed misconduct either a violation of company standards or the law within the past 12 months at work (either in a corporate office or on a job site); Reporting misconduct that has been observed to management or another source; Retaliation for having reported misconduct to management. In this section, each of these metrics will be considered in turn, providing results for the overall construction industry. Pressure to Compromise Standards ERC s NBES research has consistently shown a strong relationship between pressure and observed misconduct 6. In our studies of employees across the U.S., more than nine out of ten (93 percent) of those who perceived pressure also said that they witnessed misconduct where they worked. The same finding was true for the construction industry. Of the construction employees who reported feeling pressure, 94 percent claimed to have observed some form of misconduct. Of those who did not feel pressure, 45 percent observed misconduct. 6. Based on data from ERC s 2005, 2007, 2009 and 2011 National Business Ethics Survey (NBES). Please see ETHICS RESOURCE CENTER

23 OVERALL CONSTRUCTION INDUSTRY FINDINGS EMPLOYEES WHO FEEL PRESSURE ARE FAR MORE LIKELY TO OBSERVE MISCONDUCT 55% 6% Did NOT Feel Pressure Felt Pressure to Compromise Standards 45% 94% Did NOT Observe Misconduct in the Past 12 Months Observed Misconduct in the Past 12 Months What s concerning about this metric for the industry is that the pressure rate for employees in construction is much higher than the average for U.S. workers. In the U.S. overall, 13 percent of employees report feeling some type of pressure to compromise standards. Among construction employees, the number rose to 18 percent. Pressure comes from a variety of sources. Among the U.S. population of employees, sources of pressure are most often internal, either to the employee or to circumstances taking place within an organization (e.g. a desire for personal financial success, or efforts to save one s job). Construction employees, however, were most likely to indicate that their sources of pressure were the very nature of the job itself (e.g. adherence to a project timeline, or pressure to stay within budget). This is perhaps an indicator of the significant pressure that is characteristic of the work undertaken by the construction industry ETHICS RESOURCE CENTER 13

24 OVERALL CONSTRUCTION INDUSTRY FINDINGS RANKING OF SOURCES OF PRESSURE BY INTENSITY Most to least 1 Adhering to a project timeline 2 Trying to keep a project on budget 3 Meeting your personal financial obligations 4 Ensuring the financial stability & success of your company 5 Keeping your job* 6 Wanting to make your boss look good 7 Advancing your career* 8 Committing safety violations 9 Ignoring wrongdoing you witness 10 Violating the law The list above shows specific sources of pressure felt by employees in the construction industry. The items marked with the asterisk * were asked about in three surveys conducted by ERC: both the NBES of the Construction Industry (NBES-CI) and NBES of Fortune 500 companies (NBES-F500), as well as the main report, NBES If one were to compare these specific sources of pressure, in every case the NBES-CI pressure was deemed to be more intense than for the US overall (NBES 2011), but less intense than the Fortune 500 companies. Importantly, these are not merely pressures to perform which can arguably be good motivators for employee engagement and high quality. Rather, employees indicated that the above were pressures to compromise their company s standards or the law in order to do the job. In other words, it may well be that the highly-pressurized environment that is inherent to the construction industry may be so intense that it leads employees to consider compromising standards ETHICS RESOURCE CENTER

25 OVERALL CONSTRUCTION INDUSTRY FINDINGS Observed Misconduct As noted in Section 2 of this report, a construction company s greatest ethics risk is misconduct (violations of the law or company standards) that actually take place in the office or on the job site. Unfortunately, employees in this study revealed that observed misconduct is more commonplace in the construction industry than it is in other corporations across the U.S. More than half of employees in the construction industry (53 percent) observed some form of misconduct in the past 12 months. Most of the employees who witnessed misconduct witnessed one of the types on a project site. MORE MISCONDUCT IS WITNESSED AT PROJECT SITES 43% 31% 26% Project Site Company Office Project Site & Company Office The three most common forms of misconduct that employees said they observed were abusive or intimidating behavior (29 percent), conflicts of interest (23 percent), and failure to correct health and safety violations (24 percent). Please see the Appendix for the complete list of misconduct observed by employees in the industry ETHICS RESOURCE CENTER 15

26 OVERALL CONSTRUCTION INDUSTRY FINDINGS Employee Reporting Nearly 1/3 of those who observed misconduct and chose to report only reported once. Despite the fact that levels of misconduct are higher in the construction industry, it is noteworthy that so too are rates of employee reporting of wrongdoing that is observed. In fact, the construction industry sets a new standard for employee reporting an impressive 74 percent of construction employees reported observed misconduct, compared to the U.S. average of 65 percent. All of the 34 types of misconduct measured in this study were reported by at least two out of three employees who observed them. Importantly, some of the more frequently observed types of misconduct were also some of the least-often reported incidents. Accepting inappropriate gifts or kickbacks from suppliers or vendors, improper hiring practices, and discrimination against employees were least likely to be reported to management (each with 69 percent of employees reporting their observation). For a complete list of reported misconduct, please see the Appendix. As to where employees report, supervisors are the first line of defense. More than four out of ten employees (44 percent) reported observed wrongdoing directly to their supervisor. Nearly one in three reporters (32 percent) only reported misconduct one time, but among those who did seek to report again, one in four (25 percent) went to their immediate supervisor to do so. EMPLOYEES REPORT TO SUPERVISORS FIRST 8% 8% 9% 9% 12% 11% 30% 14% Your supervisor at your company Your supervisor from the GC at the job site Foreman at the job site Hotline for the General Contractor Site Superintendent Higher management at your company Hotline at my company All Others Combined (individually less than 5%) ETHICS RESOURCE CENTER

27 OVERALL CONSTRUCTION INDUSTRY FINDINGS Interestingly, employees in the construction industry said that they rarely take their concerns outside their own company. Only one percent of reports were made to someone outside the organization, even lower than the national external reporting rate of three percent. This is good news; it means that management is given the first opportunity to handle concerns. It also speaks to employees confidence in their company s reporting systems. Retaliation Against Employees Who Report Wrongdoing The very positive trend in employee reporting could very well be in jeopardy in the future. Unfortunately, after construction employees report misconduct, they indicate that they are very likely to experience retaliation for having done so. ERC s research has shown that when employees experience retaliation (or perceive that they could be retaliated against) for reporting, they are far less likely to report wrongdoing again in the future 7. For that reason, the construction rates of retaliation are an important concern. Overall, 37 percent of construction employees said that they experienced retaliation for having report misconduct, compared to 22 percent of employees across the U.S. overall. The retaliation that takes place is equally likely to take place on a job site or in company offices. RETALIATION IS ABOUT AS LIKELY TO HAPPEN AT COMPANY OFFICES AS ON PROJECT SITES 17% 40% 43% Both on a project site and at or from company offices By workers or management at or from company offices By workers or management on a project site 7. See Retaliation: When Whistleblowers Become Victims, published by Ethics Resource Center, available at ETHICS RESOURCE CENTER 17

28 OVERALL CONSTRUCTION INDUSTRY FINDINGS Retaliation against reporters has a profound impact on both the victim and the company, whether it is simply an errant perception (like being passed over for a promotion that one would not have received anyway), or an experience of explicit victimization (like receiving harassing calls or s). When retaliation occurs, companies have several new problems. First, a new form of misconduct has been observed and a new victim emerges the whistleblower. Second, retribution against the reporter can create an environment that is detrimental to the organization. In the construction industry, employees who experienced retaliation were far more likely to say that they would look the other way if they saw their employer doing something questionable. RETALIATION ERODES EMPLOYEE CONCERN FOR THE COMPANY 22% 29% 49% 53% 17% 30% I WOULD look the other way Indifferent I would NOT look the other way Did NOT Experience Retaliation Experienced Retaliation ETHICS RESOURCE CENTER

29 OVERALL CONSTRUCTION INDUSTRY FINDINGS Retaliation also causes a decline in long-term commitment to the company. Almost one in three construction employees who experienced retaliation said that they plan to leave their company within two years. By comparison, 71 percent of those who did not experience retaliation plan to stay with their employer for more than five years. RETALIATION WEAKENS LONG-TERM COMMITMENT 80% 80% 71% 60% 44% 40% 20% 24% 19% 12% 7% 10% 13% More than 5 Years 3 to 5 Years 1 to 2 Years Less than 1 Year Did NOT Experience Retaliation Experienced Retaliation For a list of specific types of retaliation experienced by construction employees, please see the Appendix ETHICS RESOURCE CENTER 19

30 4. ANALYSIS BY COMPANY TYPE & EMPLOYEE GROUP Employees views about ethics often vary based on the characteristics of their company, the context in which they work, and their own personal backgrounds. This is certainly true in the construction industry. In this section, we highlight the company types and employee groups that stood out in terms of their unique views about workplace conduct. Company Characteristics: How Company Size, Ownership, and Type of Work Influence Ethics Certainly, not all construction companies are alike. In fact, company size and their status as either publicly-traded or privately-held were linked to the views that employees expressed. Company Size Makes a Difference In the construction industry, ethics challenges increase along with company size. For instance, pressure to compromise standards becomes more prevalent as organization size increases. In the largest companies, 40 percent of employees reported feeling this pressure, compared to only 12 percent at the smallest companies. Misconduct rates and retaliation against reporters also followed this pattern. Furthermore, employee engagement (job satisfaction and contribution) declines as company size increases. 40% 22% 12% 75% 57% 51% 62% 42% 25% 83% 86% 89% Pressure to Compromise Standsards Observed Misconduct (1 of 34) Retaliation Against Reporters Employee Engagement 2-24 Employees Employees 500+ Employees ETHICS RESOURCE CENTER

31 ANALYSIS BY COMPANY TYPE & EMPLOYEE GROUP What is surprising, given these trends in larger construction companies, is the fact that despite their greater exposure to pressure and misconduct, employees in larger organizations were also slightly more likely to say positive things about their employer s efforts to implement an effective ethics and compliance program. And despite their lessened levels of engagement with their jobs, employees in larger organizations were more likely to step forward to report wrongdoing when they saw it. This is a trend that is opposite from the normal pattern; with increased misconduct, higher retaliation and decreased engagement, the average U.S. employee is generally less likely to say positive things about their employers ethics program, and they are far less likely to report misconduct. PROGRAM EFFECTIVENESS AND REPORTING INCREASE WITH COMPANY SIZE 100% 80% 60% 79% 81% 72% 69% 70% 78% 40% 20% 2-24 Employees Employees 500+ Employees Program Effectiveness Reporting of Observed Misconduct Another indicator of the effectiveness of their programs is the positive view of culture in large organizations. Almost three out of four (73 percent) have a positive opinion of top management s commitment to acting with integrity and encouraging adherence to company standards of conduct. Additionally, two out of three construction employees (66 percent) in the largest companies believe that their company as a whole is committed to promoting ethical conduct. These findings mirror smaller construction organizations, where perceptions of leadership are also strong (65 percent and 75 percent respectively) ETHICS RESOURCE CENTER 21

32 ANALYSIS BY COMPANY TYPE & EMPLOYEE GROUP Publicly-Traded Companies Face Elevated Ethics Risk Publicly-traded companies in the construction industry follow a pattern that is similar to that of larger organizations. Employees in public construction companies are significantly more likely than their peers in privately-held organizations to feel pressure to compromise standards, to observe misconduct, and to experience retaliation for reporting wrongdoing. EMPLOYEES FACE GREATER ETHICS CHALLENGES IN PUBLIC CONSTRUCTION COMPANIES 80% 60% 40% 44% 53% 68% 69% 20% 14% 28% Pressure to Compromise Standards Observed Misconduct (1 of 34) Retaliation Against Reporters Privately-Held Company Publicly-Traded Company ETHICS RESOURCE CENTER

33 ANALYSIS BY COMPANY TYPE & EMPLOYEE GROUP Also similar to patterns displayed by employees in larger organizations, employees at publicly-traded organizations are more likely than their private counterparts to indicate that employees at all levels are committed to ethics and workplace integrity. PUBLIC COMPANY EMPLOYEES MORE POSITIVE ABOUT COLLEAGUES ETHICS 80% 60% 62% 79% 71% 71% 69% 76% 56% 64% 40% 20% Overall Ethics Culture Top Management Commitment Supervisor Commitment Coworker Commitment Privately-Held Company Publicly-Traded Company Additionally, more than four of five employees (81 percent) in publicly-traded companies report misconduct they observe, compared to 67 percent of employees who observe wrongdoing in private companies. Employees in public construction companies also stood out in that they tended to express a greater tolerance for conduct that could be considered questionable, based on typical company standards and other regulations. When asked about 12 different situations that are considered grey areas with regard to corporate standards, employees in public companies were more likely to indicate that questionable behaviors were acceptable ETHICS RESOURCE CENTER 23

34 ANALYSIS BY COMPANY TYPE & EMPLOYEE GROUP Acceptable Behaviors NBES-CI OVERALL Publiclytraded company Privatelyheld company Buy personal items with your company credit card as long as you pay it back 18% 32% 16% Call in sick when you are not 12% 26% 9% Fudge your time sheet if you leave a few minutes early Borrow tools or equipment from a jobsite or your company 9% 19% 8% 29% 19% 32% Take leftover materials from a jobsite 19% 22% 19% Take on smaller construction jobs on the side for pay Adjust time records to stay within contract requirements Claim up to expense report caps although you did not spend the money Badmouth (talk inappropriately about) a competitor in a bidding situation Share project blueprints or details with a third party (someone who is not affiliated with the company or project) Moonlight for non-company construction projects Select higher cost options (e.g. travel or lodging) if the company is paying for them 41% 36% 41% 7% 21% 5% 5% 13% 4% 8% 19% 7% 11% 28% 8% 27% 32% 26% 12% 27% 10% ETHICS RESOURCE CENTER

35 ANALYSIS BY COMPANY TYPE & EMPLOYEE GROUP Finally, a staggering 93 percent of publicly-traded construction industry workers indicated that they feel engaged in their work; even higher than the impressive 87 percent of employees in private organizations who say that they are engaged on the job. General Contractors Have More Challenging Experiences, But Feel Better Prepared Employees differed in their views based on the type of contracts their company undertakes. These contract roles included: General contractor or prime contractor: responsible for the day-to-day oversight of the construction project and management of vendors and trades. May or may not self-perform some portion of the work and may subcontract some portion of the work. Subcontractor: An individual or business that performs part or all of the obligations of another s contract. Most often contract with a General Contractor of Prime Contractor to perform a portion of the work. Program Manager: Overall management of the conceptual, pre-construction, and post-construction phases of a project. When it comes to pressure to compromise standards and retaliation, employees in general contracting organizations were most likely to indicate that they experienced challenge. PRESSURE & RETALIATION HIGHER AMONG GENERAL CONTRACTORS Pressure 25% 17% 13% Retaliation 34% 29% 49% General Contractor Subcontractor Program Manager 2013 ETHICS RESOURCE CENTER 25

36 ANALYSIS BY COMPANY TYPE & EMPLOYEE GROUP Additionally, employees in general contracting companies are slightly more likely to say that their companies have strong ethics cultures and effective ethics and compliance programs. MORE GCS THAN SUBCONTRACTORS BELIEVE THEY HAVE STRONG CULTURES AND EFFECTIVE PROGRAMS 62% General Contractor or Prime Contractor 57% Subcontractor 59% Program Manager Strong Program Effectiveness & Strong Culture Challenges were not limited to general contracting organizations, however. Employees in subcontracting companies tended to express more negative views about their managers, particularly when it comes to the extent to which their supervisors and top managers talk about the importance of ethics and encourage ethical conduct within the organization. Fewer subcontractors also believe that their coworkers model and promote ethics than employees in general contracting organizations and among program managers ETHICS RESOURCE CENTER

37 ANALYSIS BY COMPANY TYPE & EMPLOYEE GROUP SUBCONTRACTORS ARE LESS LIKELY TO PERCEIVE SPECIFIC ETHICAL ACTIONS 80% 60% 40% 72% 59% 75% 73% 68% 73% 60% 54% 72% 20% Talking About Ethics Encouragement of Ethical Conduct Modeling Ethical Conduct General Contractor Subcontractor Program Manager What made Program Managers distinct is that they are less likely to feel engaged on the job, and they do not feel valued within their organizations. This group is also most likely to indicate that they are fearful about raising concerns to management. SIGNIFICANTLY FEWER PROGRAM MANAGERS ARE ENGAGED, FEEL VALUED, AND FEEL THEY CAN APPROACH MANAGEMENT WITHOUT FEAR 100% 80% 60% 88% 88% 77% 75% 77% 64% 81% 81% 73% 40% 20% Engaged Feel Valued No Fear of Approaching Management General Contractor Subcontractor Program Manager 2013 ETHICS RESOURCE CENTER 27

38 ANALYSIS BY COMPANY TYPE & EMPLOYEE GROUP Employee Characteristics: Exploring How Perceptions Differ Between Groups Trends among employee groups are also important to explore. Certain groups stand out as being at-risk with regard to pressure and noncompliance. Others display exemplary commitments to integrity despite challenging circumstances. Many Union Members Report Misconduct, Despite Negative Experiences REPORTED MISCONDUCT & EXPERIENCED RETALIATION Union Non-Union 78% 55% 68% 29% Reporting Retaliation Unions emerged as another important employee work group in this study. Unionized construction employees indicated that they have significantly less positive workplace ethics experiences. By comparison to their non-union peers, unionized employees are almost three times more likely to experience pressure to compromise workplace standards (35 percent vs. 12 percent). Union members were also significantly more likely than non-union members to observe misconduct (69 percent vs. 50 percent). Nonetheless, the vast majority of union employees report misconduct when they observe it. Nearly four out of five (78 percent) of union members reported wrongdoing; 10 percentage points higher than the non-union rate. 8 Unfortunately, union employees are not rewarded for their good acts when they report misconduct. A startling 55 percent of union members who reported misconduct indicated that they experienced retaliation as a result; far higher than the non-union retaliation rate of 29 percent. The differences in specific forms of retaliation union members experienced were also disconcerting. Employees in unions experienced more forms of retaliation than nonunion employees, and they reported experiencing more extreme types of retaliation as well. For instance, 26 percent of non-union employees reported being verbally abused by management after reporting misconduct, compared to over half of union employees (52 percent). Only nine percent of non-union workers said that they were physically harmed for making a report, whereas 41 percent of union workers said that they had been harmed physically. 8. Percentage points = the difference between the union and non-union results. In this case regarding reporting misconduct, 78 percent minus 68 percent equals a ten percentage point difference ETHICS RESOURCE CENTER