The Financial Aspects of Not Dealing
with Workplace Misconduct

See also: Management Skills Self-Assessment

In the last decade, the financial services industry has been shaken by a wave of scandals highlighting the importance of employee conduct and exposing misconduct as a leading cause of these scandals. The increase in risk and compliance has prompted many financial institutions to step up their efforts to address misconduct in the workplace.

The regulatory community is also increasing its efforts to detect gaps in conduct risk management and to improve its methods. Regulatory agencies are seeking to educate firms about the consequences of misconduct, which cannot be prevented by simply following rules and processes.

What is Workplace Misconduct?

Misconduct in the workplace refers to improper behavior by an employee, behavior that is inappropriate for the workplace and negatively impacts them, their coworkers, or their environment. It may take the form of minor infractions to serious breaches of company policy. Training and one-on-one conversations can correct some types of misconduct, but others require direct action such as termination.

To protect employees, promote teamwork, maintain best practices, and avoid litigation, the misconduct must be resolved promptly. You can reflect your company's mission and values as a leader by managing misconduct appropriately. 

There are significant financial implications of not dealing with workplace misconduct:

Reduced Productivity

Unchecked and severe workplace misconduct by employees results in a loss of employee morale, the development of a culture of apathy and negativity, and decreased productivity on the part of the organization. A major consequence of employee misconduct is low team morale and low productivity.

Line managers know that conflict and dissent within the ranks cause people to not perform at their best. Moreover, people who are experiencing conflict are more likely to show signs of stress and other illnesses. According to a study conducted by an insurer on workplace stress, healthy employees are three times more productive than unhealthy employees.

Costs of Managing the Misconduct

It can be difficult for HR professionals and line managers to deal with the fallout of inappropriate conduct. A report by the government of Victoria, Australia, estimated that between 30-50% of a manager's time is spent resolving workplace conflicts.

Compensation Claims

Bullying, sexual harassment, and other types of misconduct can also lead to compensation claims against employers. A senior sales consultant at IBM filed a lawsuit against the company in 2021 claiming that the company failed to act on repeated complaints of bullying and sexual harassment. She is seeking $1.1 million in damages.


The brand and reputation of an organization can be affected significantly by the culture of an organization and the management of employee misconduct. If a company is perceived as an employer that values its employees, it's easier to hire and retain good employees, and it's easier to attract customers as well. Banks that are perceived as allowing fraud, and retailers that leave the safety and quality standards of their employees unchecked, are not places where people want to put their money.

A company's brand can suffer significantly when employees engage in misconduct that attracts negative media coverage. As an example, the Australian retail company David Jones Ltd suffered damage to their reputation following a very public lawsuit brought against their former CEO by a female employee. The final payout to the employee was relatively modest, but the reputational damage was significant, especially given that the majority of the retailer's customers were female.

Avoiding Unnecessary Costs

In light of inappropriate workplace behavior's high cost and risk, what can employers do proactively to limit and prevent it?

The first thing employers can do is look at how recently they last:

  1. Reviewed employee complaints;
  2. Made managers aware of bullying and sexual harassment;
  3. Updated and reviewed policies;
  4. Took into account the "noise" generated by employee surveys and data analysis;
  5. Considered whether turnover and absenteeism are caused by any particular factor in the workplace.

Disciplinary Responses to Misconduct at Work

Employees proven to have committed gross misconduct can be immediately dismissed from their jobs, but some offenses go through a standard warning process before an employee is dismissed. Here are some common disciplinary responses at work:

  • Verbal warning

    A verbal warning is commonly given by managers before going on record regarding misconduct. The manager explains company policy to the employee and creates an improvement plan if necessary. An employee is alerted to an issue and given a chance to fix it through a verbal warning. A verbal warning can be helpful for people who don't realize they committed misconduct.

  • Written warning

    In the event that employee behavior does not change after verbal warnings, written warnings are most commonly issued. An employee's record should be updated with written warnings that are more serious. Include a written warning that explains the behavior or actions the employee violated as well as the policy they violated. If the behavior continues, tell them what you will do next. A company decides how many written warnings it will issue before taking direct action.

  • Probation

    A probation period is another way that employers can closely monitor their employees' actions. An acknowledgment form may be required for those on probation. If an employee does not show improvement, probation may be extended for another 60 or 90 days.

  • Suspension

    Additionally, you can remove certain privileges from your employees or even suspend them from a project. Tell the employee what your expectations are while they are suspended if you are suspending them during an investigation. Perhaps they must meet with human resources or perhaps they must stay away from work.

  • Dismissal

    Employers usually resort to firing employees as a last resort when dealing with behavioral issues. However, your business may need to dismiss an employee if the employee commits gross misconduct. Keep a copy of the written communication you sent to the employee, and file it with HR.

Further Reading from Skills You Need

The Skills You Need Guide to Leadership

The Skills You Need Guide to Leadership eBooks

Learn more about the skills you need to be an effective leader.

Our eBooks are ideal for new and experienced leaders and are full of easy-to-follow practical information to help you to develop your leadership skills.

Wrapping Up

Meetings with staff and regular performance reviews can help you catch misconduct before it becomes more serious. Being familiar with your employees builds trust and gives you a better understanding of how they behave. Healthy workplace dynamics can be complicated when leaders do not know how employees spend their time. The company leaders are also held accountable for their behavior and expected to adhere to the same standards as themselves.

It is important to explain to your staff how employees can report harassment or discrimination in a confidential manner. With a strong human resources department, you can develop and implement effective business policies, oversee employee behavior, and lead your organization more effectively.

About the Author

Adam Smith is a digital marketing guru at Eyes on Solution. He is adept in IT as well. He loves to write on different topics. In his free time, he likes to travel and explore different parts of the world.