What hallmarks distinguish “high performing” ethics and compliance programs from “low performing” programs? A new benchmark report published last week offers some valuable answers to that question.
Many E&C surveys and programs focus on check-the-box metrics—policies, hotlines, training, and auditing—as an adequate basis of measuring program effectiveness. None of these metrics, however, really speak to whether the company has an effective E&C program.
Rather, a new survey conducted by ethics and regulatory compliance advisory firm LRN of 556 ethics, compliance, and legal professionals found that a values-based workplace culture is “significantly more effective” at influencing employee behavior than those solely orientated toward rules or procedures.
“At their core, all ethics and compliance programs focus on dissuading misconduct, ensuring it is reported when it occurs and preventing retaliation,” says Mike Eichenwald, who leads LRN’s advisory practice. “The best way to measure the effectiveness of any ethics and compliance program is to look for the presence or absence of ethical behaviors across the organization, not of program elements.”
To quantify the effectiveness of an E&C program, LRN came up with a proprietary framework, called the Program Effective Index (PEI), which scored companies across three areas of workplace behavior:
Ethical decision making: Are employees’ choices driven by values?
Organizational justice: Are senior executives and high performers held to the same standards of conduct as other employees?
Freedom of expression: Do employees speak up and willingly contribute to and exchange ideas?
LRN then scored each company on a grade scale: An “A” grade program fell within the top 20 percent of scores, with an average grade of 86 percent; a “B” grade averaged 75 percent; a “C” grade averaged 69 percent; a “D” grade averaged 63 percent; and an “F” grade averaged 50 percent.
Overall, E&C programs that focused on values, rather than rules, scored highest on the PEI, including 66 percent of programs that received an “A” grade, and 61 percent whose programs received a “B” grade. Among low-performing programs, 43 percent received a “D,” and 33 percent received an “F.”
To explore these results further, LRN’s PEI highlights the following four characteristics that effective E&C programs share:
Values are embedded into business operations. When asked whether living their values enhances brand appeal, 93 percent of respondents of high-performing programs answered “almost always true” or “often true,” compared to 49 percent of respondents of low-performing programs.
“The best way to measure the effectiveness of any ethics and compliance program is to look for the presence or absence of ethical behaviors across the organization, not of program elements.”
Mike Eichenwald, Leader, Advisory Practice, LRN
Acting with integrity to strengthen brand appeal means acting ethically, even if it costs the company business, says Susan Divers, a senior adviser at LRN. “If you have a CEO who thinks that way, it really makes for a much more ethical, compliant, and motivated company,” she says.
Respondents of high-performing programs also significantly outnumbered respondents of low-performing programs whose senior executives are said to walk-the-walk as it relates to demonstrating values.
Specifically, the C-suite in high-performing programs:
Hold leaders accountable for ethical behavior;
Promote ethics without being prompted to;
Model values-based behavior;
Engage the chief ethics and compliance officer in strategic decision making;
Considers management behavior as a perquisite for promotion; and
Holds leaders accountable for owning ethics and compliance in their business areas.
Middle management engagement is an equally important component of high-performing programs in assuring that values and behaviors align with a company’s culture. According to the findings in LRN’s survey, middle management in these companies know they are accountable for:
Assessing E&C risk for their business and teams;
Actively supporting the E&C program;
Modeling values-based behavior; and
Dealing effectively with E&C concerns raised by their team.
The majority of respondents (82 percent) whose programs received a grade of “A” or “B” train middle managers on how to promote the E&C program, compared to 49 percent of respondents whose programs received a grade of “D” or “F.”
A variety of channels are used to convert policy into practice. High-performing programs have a code of conduct that meets the following goals: aligns values-based behavior with business goals; expresses core values in behavior terms; gives people a clear sense of the company’s purpose; and further inspires commitment to ethical behavior.
PROGRAM EFFECTIVENESS INDEX CRITERIA
In LRN’s Program Effective Index (PEI), participants rated their organizations based on the following criteria:
"High performers who violate our code of conduct are tolerated."
"Managers in my organizations sometimes act as if they're above the rules."
"Our employees trust that their leaders consistently make values-based decisions."
"Employees in my company feel pressured to achieve immediate objectives, even if it means acting in ways that our inconsistent with our values."
"Employees in my company hesitate to speak up/out during team meetings, because they worry how their managers will react."
"Employees in my company question decisions when they conflict with our values."
"Employees in my company do the right thing, even if it's not in their personal best interest."
"Employees in my company are comfortable skipping levels or going to a higher level above their direct boss to raise ethical concerns."
Furthermore, high-performing programs, more often than low-performing programs, use multiple strategies to embed their code of conduct into corporate culture. Such avenues include discussions led by ethics and compliance; e-mail campaigns; online education; using internal social media; and classroom-style education.
“The more channels, you use, the better,” Divers says. One example is using social media to profile employees who have done a good job or have demonstrated ethical behavior in some way, she says.
Also, concerning the code of conduct, high-performing programs effectively communicate expectation of employee behavior in a “clear and concise manner.” This was cited by 84 percent of respondents whose programs received a grade of “A” or “B,” compared to 51 percent of respondents whose programs received a grade of “D” or “F.”
A common mistake companies make is to have their policies written by lawyers, for lawyers, rather than employees, Divers says. Instead of having a code of conduct that is full of jargon and references a whole bunch of rules and prohibitions, a more effective way to communicate is to make policies “clear, simple, and easy-to-understand,” she says.
Training techniques are also an important component of E&C programs. The majority of respondents in both high-performing and low-performing programs said they are starting to use shorter, more interactive training techniques. Eighty-four percent of respondents of high-performing programs, and 66 percent from low-performing programs, said they plan to use “shorter, more frequent training modules.” Additionally, 79 percent of high-performing programs use facilitated workshops, compared to 69 percent of low-performing programs.
Focusing on the human behavioral and emotional reasons as to why employees should do the right thing and using real-life examples is “much more powerful” than lecturing for 45 minutes on rules and regulations, Divers says. For example, LRN uses short video vignettes, one of which speaks to tolerance in the workplace. The video shows short snippets of employees making culturally insensitive or prejudice remarks to coworkers and at the end shows the actual faces of the targeted employees and the emotional toll that such hurtful and bias remarks cause.
In referencing the video, Divers explains, “it makes people think about the value of respect and tolerance,” rather than taking a rules-based approach (“you must not discriminate on the basis of age, race, gender, or sexual orientation”). Focusing on respect as a common value can be particularly effective when engaging employees of other cultures who don’t necessarily understand U.S. laws.
Informal regulatory guidance is converted into actual practice. When asked to what extent their companies implement ongoing guidance from the U.S. government, respondents of high-performing programs have adopted the following informal regulatory guidance:
Cross-functional commitment and cooperation by HR, audit, finance, sales to ethics and compliance;
Assuring internal controls are efficient to the scope of the company’s risk;
Ensuring compliance policies are clear and easily understood by employees; and
Conducting a root cause analysis of employee accountability when violations occur.
All corporate departments are involved in E&C initiatives. In the majority of high-performing and low-performing programs, respondents cited numerous departments as being engaged in ethics, including the C-suite, HR, internal audit, legal, and finance.
Ethical engagement from sales and marketing showed the biggest divide between high-performing and low-performing programs. Fifty-six percent of respondents of high-performing programs said sales and marketing was engaged in ethics, compared to 39 percent of respondents of low-performing programs.
Overall, the most significant lesson for ethics and compliance professionals is that a values-based E&C program is unequivocally more effective than one that focuses strictly on rules. Focusing on culture and employee behavior makes a world of difference between companies whose employees act with integrity and those that do not.