Key Points
Most employees don't speak up when they witness unethical behavior.
There are two main reasons employees don't speak up: the fear of retaliation and the expectation that speaking up will be futile.
Deliberately and proactively ask employees to speak up.
Set an example by talking openly about ethical issues.
Check in more often by making reviews ongoing in your organization.
Never tolerate retaliation against anyone who speaks up in your organization.
Here's how to create an organizational culture that encourages employees to voice their concerns.

All organizations understand the value of feedback. But only some encourage opinions both positive and negative and lend an ear to self-styled “devil’s advocates.” Employees who make concerns known help organizations thrive by identifying issues and providing opportunities to adapt, innovate, and avoid costly mistakes.
This is especially true for ethical behaviors. Employees who speak up when they observe misconduct help organizations reduce risk. The sooner they speak up, the sooner the organization can take action to prevent potential issues from developing into major scandals and damaging headlines.
Most employees do not speak up when they observe unethical behavior. Top-down hierarchies tend to create a culture that encourages them to remain silent. Those at the bottom of the hierarchy cite two main reasons for not speaking up:
Fear
Employees are afraid of facing retaliation and hostility if they speak up. They worry about upsetting their managers or leaving a coworker feeling betrayed. Most feel that their career opportunities will deeply suffer if they voice their concerns.
Futility
Many employees believe it is useless to speak up. They have too little influence, and those with power do not want to hear about the problem; why take the risk if it’s not worth the effort?
What To Do
SOLICIT FEEDBACK. Be proactive about engaging employees. Ask them to consistently voice their concerns and show you are open to receiving feedback. Formally petition teams and make airing opinions an integral part of the evaluative process of project development. Make sure to follow up about what has changed in response to their feedback.
SET AN EXAMPLE. Talk openly about ethical issues and highlight both positive and negative examples. This shows that ethical issues are a priority for your organization and that you want to hear about them when they arise.
MAKE EMPLOYEE REVIEWS ONGOING. Don’t make the formal, yearly review the only time you provide feedback for employees. Make it a part of your regular communication process and encourage employees to provide feedback to you and to their peers. An open culture is one that facilitates exchange between colleagues who are up, down, and across the organizational hierarchy.
NEVER TOLERATE RETALIATION. Any reports of retaliation by current employees or supervisors should be dealt with immediately. If the reports are proven true, the offending individuals should be quickly reprimanded. The process should be outlined to other employees to show your leadership’s commitment to anti-retaliatory efforts.
Further Reading
Morrison, E. W. (2014). Employee Voice and Silence. Annual Review of Organizational Psychology and Organizational Behavior 1, 173-197.