Integrity, accountability, and transparency are the most important elements of an effective ethics and compliance program culture to prevent misconduct. If those values are not woven into the fabric of the organization, there can be no assurance that employees will follow the rules, policies, and procedures designed to prevent misconduct in the first place.
That is the core message from “The 2020 Ethics & Compliance Program Effectiveness Report” by ethics and compliance advisory firm LRN, which surveyed 500 ethics, compliance, and legal executives from a cross-sector of industries around the world. According to LRN, the following pillars of ethical culture determine whether ethics and compliance (E&C) rules will be followed, ignored, or circumvented:
- Leaders at all levels model values-based behaviors and bring to life the organization’s Code of Conduct and policies;
- Business decisions and governance are driven by values and transparency; and
- Employees can speak out and speak up without fear of retaliation.
LRN’s survey showed that organizations with a strong ethical culture are 60 percent more likely than those with less effective programs to make ethical behavior a criterion in bonus allocations.
LRN Senior Advisor Susan Divers explains that in the early days of E&C programs, most Codes of Conduct were written by lawyers, and there used to be a tendency to solve every problem with rules, “but if you don’t have a culture that really values doing the right thing, even if it’s inconvenient or even if you’re not going to make your numbers … then it just doesn’t matter,” she says. “It doesn’t impact people’s behavior unless the culture supports what is in the rulebook.”
Within strong ethical cultures, the organization’s values permeate its Code of Conduct, policies, training, and evaluation and compensation processes. For example, LRN’s survey shows that organizations with a strong ethical culture are 60 percent more likely than those with less effective programs to make ethical behavior a criterion in bonus allocations and are 57 percent more likely to hold senior executives accountable for misconduct.
“If you don’t have organizational culture where everybody is held to the same standard and values, then you don’t have a program,” Divers says. “Again, you have that gap between what your program says and what it actually does.”
The survey also shows that, within strong ethical cultures, E&C considerations are integrated into business decisions, planning, and operations, including when setting revenue targets. According to findings from LRN’s survey, employees of organizations whose leaders weigh E&C criteria as they pursue business and revenue opportunities are 4.3 times more likely to question decisions that seem to conflict with organizational values; and 3.8 times more likely to do the “right thing,” even if it’s not in their personal best interest.
The coronavirus pandemic has showcased many examples of employees doing the right thing for the greater good. Divers cites the example of employees at Brazil-based petrochemical company Braskem who volunteered to self-isolate and sleep at the company’s plants for months at a time to ensure that it could keep running during the lockdown. “You can’t have a rule that says that—and if you did, I would think it would unenforceable and somewhat unethical,” Divers says. “That’s an example of values at work, where the Braskem employees went above and beyond. And they did it because they had the greater good—the company and the community—in mind.”
Another reflection of a healthy culture is that employees are more likely to speak up or speak out, even in front of managers. “The more people that speak up and the more they are listened to, the healthier the culture,” Divers says. “That says they don’t have to fear retaliation. It also says that the management is responsive.”
Another characteristic of high-performing E&C programs: Audits and regular risk assessments are used to evaluate program effectiveness, identify problems, and to conduct a root cause analysis when misconduct occurs, Divers says. They also integrate the results into their risk mitigation processes going forward, she says.
Leading programs think strategically, Divers adds. They take a step back and say, “Where are we today and where do we need to be tomorrow?”
Beyond that, leading E&C programs customize their risk assessments to their specific business model, Divers says. Lately, this has been an area of focus for the Department of Justice in evaluating compliance programs, with the idea being that just because two companies are in the same industry and are roughly the same size doesn’t necessarily mean they have the same risk profiles.
“There has been a real push … away from what I call ‘blind benchmarking,’ ” Divers says. “What does your risk assessment say? And does it reflect in your training? Does it reflect in your policies? Does it reflect in where you put your program resources? This is an area that is ripe for discussion.”
LRN’s survey reveals some encouraging findings. For example, 75 percent of E&C professionals believe their organization takes ethical behavior into account when deciding on promotions; 83 percent said they believe the E&C function at their company has the ability to raise issues directly with the C-suite or board; and 80 percent believe the function has the needed resources to carry out their mission.
The survey also highlights areas in need of improvement. For example, less than half (46 percent) of respondents said their organizations’ senior leaders support effective sanctions or penalties on senior executives and high performers who are involved in misconduct, and just 37 percent said their organization takes ethics into account when setting sales targets or goals.
The survey also notes that many companies still need to improve gaps in performance evaluations. Just 56 percent of respondents said their organization requires ethical conduct to be evaluated when deciding on employee bonuses, and just 39 percent said their company takes ethics into account when hiring managers and executives.
The survey also reveals that only 33 percent of respondents said they have training that works on mobile devices. “If you think about it, people who aren’t on worksites and don’t have computers can’t take training,” Divers says.
The fact that many companies still don’t have the tools needed to provide training on mobile devices clearly indicates that many companies would not satisfy the Justice Department’s expectation that companies should make their policies and procedures easily accessible.
In the Justice Department’s newly revised “Evaluation of Corporate Compliance Programs” guidance, the agency asks companies directly: “Have the policies and procedures been published in a searchable format for easy reference? Does the company track access to various policies and procedures to understand what policies are attracting more attention from relevant employees?”
“If your policies are on a mobile app—along with your training, along with your hotline, along with your Code—then, yes, they would be easily searchable,” Divers says. “It’s pretty incredible to me that that’s still not happening.”