High corporate integrity pays off.

The shareholders of businesses that encourage their employees to report misconduct receive returns that are 5 percent higher than shareholders of competing companies that do not support this kind of open communication, according to a recent survey by the Corporate Executive Board, a global provider of business research and analysis services.

The survey reveals that companies exhibiting high integrity are two-thirds less likely to experience major law violations or company policy breaches. However, businesses with a corporate culture that does not emphasize integrity are 10 times more likely to see behaviors such as financial fraud, harassment and regulatory violations.

In addition, employee performance is better when the manager shows consistent principled behavior. The survey saw a 12 percent difference between the performance of employees with integrity-directed managers and the performance of other employees.

The Corporate Executive Board has found seven characteristics that encourage corporate integrity:

• Comfort in speaking up
• Trust in colleagues
• Strong employee/manager relationship
• Principled “tone from the top”
• Clarity of expectations regarding compliance
• Open communication
• Organizational justice

If a company focuses on these characteristics, it can expect better employee performance, less misbehavior, higher shareholder returns and an improved bottom line.