In her recent speech at the 10th Annual Culture and Conduct in Financial Services Summit, Emily Shepperd, COO of the UK’s Financial Conduct Authority (FCA), delivered a compelling message: culture is contagious. It’s a force that can either inoculate organizations against misconduct or expose them to reputational ruin. The FCA’s evolving regulatory framework emphasizes that fostering an ethical culture is not just about ticking compliance boxes, it’s central to maintaining market integrity and consumer trust.
This perspective dovetails with insights from LRN’s 2024 Benchmark of Ethical Culture report, which highlights the measurable impact of ethical culture on organizational performance and risk mitigation. Coupled with findings from my own exploration of fostering ethical cultures globally, it becomes clear that understanding and measuring culture isn’t a nice-to-have, it’s a business imperative.
The FCA identifies poor culture as a root cause of many financial failures and misconduct cases. Culture isn’t just a passive backdrop to corporate operations; it’s an active driver of behavior. As Sheppard notes, when leadership fails to model ethical conduct, the entire organization becomes vulnerable to risk.
We have shown from our research that companies with strong ethical cultures outperform peers by approximately 50% in metrics like innovation, adaptability, and customer satisfaction. Even more striking is the role of ethical culture in reducing misconduct: employees in strong cultures observe fewer unethical behaviors and are 1.5 times more likely to report them when they do occur.
But beyond performance, ethical culture acts as an organizational immune system. As Sheppard points out, the FCA views culture as a social immune system capable of mitigating risk through shared values and norms. This is not just theoretical; LRN’s data shows that psychological safety, the foundation of a culture where employees feel empowered to speak up, is the strongest predictor of whether misconduct is reported. For every unit increase in psychological safety, the likelihood of reporting misconduct increases by 2.4 times.
The importance of measuring ethical culture cannot be understated. Despite the clear link between culture and risk, many organizations struggle to measure ethical culture effectively. Traditional compliance metrics often focus on policy adherence and training completions, missing the nuances of how culture influences daily behaviors and decisions.
LRN has a solution for companies finding it problematic to measure culture, with a comprehensive framework to evaluate dimensions like leadership modeling, psychological safety, organizational justice, and principled performance. Our Ethics & Compliance Culture Assessment (ECCA) leverages data which organizations can identify cultural weak points before they manifest as compliance failures or reputational crises.
Moreover, the ECCA doesn’t just provide a static snapshot. It integrates seamlessly with our Catalyst Reveal solution, a powerful compliance analytics and benchmarking tool that enables organizations to benchmark their ethical culture against industry peers, track improvements over time, and correlate cultural health with business outcomes. This data-driven approach ensures that culture isn’t just a buzzword, it’s a measurable, manageable asset. It also provides real-time visibility into program performance and enables proactive risk mitigation and management by leveraging learner activity, artificial intelligence (AI), and forward-looking insights.
The FCA’s focus on culture reflects a broader trend in global regulatory environments. Regulators are increasingly scrutinizing not just what companies do, but how they do it. In the UK, financial firms are expected to embed cultural considerations into their governance structures, aligning with the FCA’s expectations of operational resilience and ethical conduct. In a speech delivered as far back as 2020, titled "A regulatory perspective: the drivers of culture and the role of purpose and governance," delivered by Marc Teasdale, Director of Wholesale Supervision at the FCA, it was highlighted that: "Firms with healthy cultures demonstrate strong governance that supports the daily delivery of their essential purpose."
One of the most compelling insights from our LRN 2025 Ethics and Compliance Program Effectiveness Report is the leadership disconnect. Senior leaders often perceive their organization’s culture more positively than middle managers and front-line employees. This gap is not just a perception issue, it represents a significant risk. When leaders are out of touch with the cultural realities on the ground, they are less likely to identify emerging risks or areas where misconduct may flourish. There is also a perception gap regarding middle management, with over a 2x gap between positive perceptions of middle management making difficult decisions consistent with company values (37%) and the perception of executives leading with values when it comes to difficult choices (79%). Addressing this disconnect requires robust measurement and feedback mechanisms. Tools like the ECCA provide leaders with granular insights into how culture is experienced at all levels of the organization. This feedback loop is essential for ensuring that cultural initiatives are not just top-down mandates but are embedded throughout the organizational hierarchy.
As organizations navigate an increasingly complex global landscape, adaptability becomes a critical determinant of success. LRN’s data reveals that organizations with strong ethical cultures are 2.6 times more likely to adapt quickly to internal and external changes. This adaptability is not just about responding to crises, it’s about fostering a culture that embraces innovation and resilience.
The rise of AI adds another layer to this dynamic. The risks associated with AI, including bias, data privacy breaches, and unintended decision-making outcomes highlight the critical need for compliance programs to address emerging technologies effectively. However, only 26% of professional E&C respondents overall report expending “a great deal” of effort in emerging technologies such as AI. Even for High-Impact Programs, the number is at less than 50%. There are even lower percentages for addressing AI in codes of conduct, at 24% and 33%. High-Impact Programs are operationalizing at a much faster rate compared to Medium-Impact Programs but are still in early stage overall with less than 50% of High-Impact Programs integrating AI into training.
LRN’s Reveal solution can play a pivotal role here, offering compliance analytics that help organizations navigate the ethical implications of AI adoption. By integrating cultural assessments with technology benchmarks, organizations can ensure that their digital transformations are guided by ethical principles.
The evidence is clear: ethical culture is not just a compliance requirement it’s a strategic asset. From the FCA’s regulatory focus to LRN’s data-driven insights, the message is consistent: organizations that invest in measuring and managing their culture are better positioned to mitigate risk, drive performance, and foster resilience.
LRN’s ECCA and Reveal solutions offer the tools organizations need to turn cultural insights into action. By embedding these tools into their compliance frameworks, organizations can move beyond reactive risk management to proactive cultural stewardship.
In an era where culture is contagious, the question isn’t whether organizations should measure their ethical culture, it’s whether they can afford not to.