Ethical culture strengthened by 2022 challenges, survey finds

In the 2023 edition of LRN’s “Ethics & Compliance Program Effectiveness Report,” released Wednesday, 84 percent of nearly 1,860 ethics and compliance professionals polled reported their organizations relied on values, rather than rules, to motivate their employees to comply with corporate codes of conduct. Respondents to the survey worked at companies and organizations with at least 1,000 employees across 26 industries and in 10 different countries.

“That more organizations report relying on values rather than rules to motivate employees is a particularly significant finding, as LRN’s research over the past 28 years shows that values strengthen ethical behavior much more effectively than rules,” the report said. “It also documents the importance of ethical culture in determining whether rules will be observed or not.”

The report found most respondents—85 percent—said their company’s ethical culture has been strengthened, not weakened, in facing the myriad challenges of the past 12 months, be it continued response to the Covid-19 pandemic, Russia’s war in Ukraine, supply chain disruptions, and/or other headwinds.

The report further analyzed survey results to judge the effectiveness of respondents’ ethics and compliance programs. Rated as having high impact, medium impact, or low impact, programs were measured by outcomes including ethical decision-making (choices informed by values, not expediency); organizational justice (level playing field for senior managers and employees); and freedom of expression (employees speaking up and exchanging ideas).

High-impact programs are more likely to continually adapt amid organizational changes or as risks they face increase or decrease, the report found. Making ethics and compliance training more effective is a bigger priority at firms with high-impact programs, as is meeting employees where they are.

Accountability—ensuring personal liability for misconduct—is more likely to be enshrined in formal requirements for assessing performance, hiring, promotion, and bonuses at firms with high-impact programs, compared to those with low-impact programs, the report said.

The survey found more than two-fifths (44 percent) of companies have fired or disciplined a senior executive for unethical conduct in the past year, with three-quarters (76 percent) of those respondents saying the individual was subject to financial clawbacks. At companies with a high-impact ethics and compliance program, those numbers were 54 percent and 84 percent, respectively.

The poll’s overall findings of the benefits of strong ethics and compliance programs did not mean all organizations rose to meet new challenges. For example, despite the war in Ukraine and escalating sanctions as a result, just a quarter (25 percent) of respondents plan to enhance trade controls and sanctions training. Less than half (45 percent) have strengthened risk controls in this area, the report found.

So, how should firms improve the effectiveness of their ethics and compliance programs? Survey respondents said they were considering enhancements like simplifying policies and procedures (63 percent), designing more training programs in-house (62 percent), integrating program elements into a mobile app (60 percent), and making their company’s code of conduct searchable and web-based (59 percent).

The survey “documents that there is a significant difference between doing the minimum and aspiring to the maximum—the key characteristic of high-performing programs,” the report said. “And it demonstrates that flexibility; excellence; responsiveness to new risks; and, above all, a commitment to values are the keys to effectiveness.”