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Identifying Top Indicators of an Effective Ethics and Compliance Program

Joe Mont | May 20, 2014

Football has touchdowns and baseball has homeruns. If only keeping score for compliance officers was as easy. Measuring success, knowing what works and why, is no simple task for compliance departments.

The hallmarks of an effective compliance program are spelled out in numerous pieces of regulatory guidance, including the U.S Justice Department's Federal Sentencing Guidelines. The challenge, however, is to go beyond checking those boxes, to see that company culture is indeed changing for the better.

Assessing program effectiveness was the challenge ethics and legal compliance advisory services firm LRN takes up in a new survey unveiled this week at the Compliance Week 2014 conference in Washington D.C. Providing metrics and informative benchmarking are the goals of its “2014 Ethics and Compliance Program Effectiveness Report.”

LRN has conducted annual surveys of ethics and compliance programs around the world for seven years. In exploring new ways to analyze the survey data, it has introduced the new Program Effectiveness Index (PEI). Individual programs were given an index score between 0 and 1, from least impactful to most, based on how well they accomplish goals related to employee engagement, levels of speaking up, code-of-conduct compliance, overall compliance, and values-based decision making. Studying the highest-rated companies and sectors offers a window into what makes their programs so successful.

“In measure after measure, you see many different examples of ‘building in' as opposed to ‘bolting on' programs,” says Wayne Brody, a member of LRN's Ethics and Compliance Advisory Services Practice and an author of the study. “The ones that clearly have more effective programs are the ones that are built in. Program goals are about dealing directly with employees, not just around ethics and compliance, but behaviors. Successful programs celebrate employees who speak up and demonstrate a clear appreciation of culture as a business driver.”

Where to Report?

There is perpetual debate on whether the compliance function ought to report to general counsel, or if directly reporting to the CEO or board is more desirable. Among the more effective programs, far fewer report to the general counsel, and far more to the CEO or the board, LRN found.  

Brody stresses that executive tone-setting should not be limited to occasional memos or scripted speeches. Programs excel when CEOs drive culture, he says, highlighting a revealing question in this year's survey: Does the CEO ever check in with ethics and compliance officers on senior management performance and promotions? “Not surprisingly there are only about 20 percent of companies where that is true, but they have hugely more effective programs on average than the 80 percent where that isn't true,” he says.

Important differentiators, Brody says, are when top-level executives address ethics and compliance issues in staff meetings and operational reviews and are visibly among the first to complete training. Sitting front-and-center at workshops is just one way to send the message that “this matters to me, so it should matter to you.”

Education and Training

“In measure after measure, you see many different examples of ‘building in' as opposed to ‘bolting on' programs. The ones that have the clearly more effective programs are the ones that are built in.”


—Wayne Brody,
Senior Member, Ethics & Compliance Advisory Services Practice,
LRN

The study underscores the importance of training and the challenge of making it effective and engaging. “It is not surprising that online education fatigue remains a major hurdle for many programs to overcome,” the report states. Other challenges include insufficient resources, lack of dedicated personnel to drive campaigns, and disinterest among senior leadership.

Common training goals among highly rated companies are: to promote awareness and understanding of the E&C programs purpose and importance; to emphasize personal accountability and responsibility; influence employee behavior; promote alignment between core values and day-to-day operations; and  integrate company values as a framework for company decision making. Top programs encourage employees to speak up and use company values as a framework for decision making.

A surprising finding for researchers: “The celebration of ethical conduct, stood out as the most telling measure of program effectiveness.” The survey asked how often companies rewarded or spotlighted acts of ethical leadership and in what ways. Top answers among highly rated companies included awards, recognition in team meetings, recognition in company communications, and job promotions. By contrast, not a single program in the bottom quintile reported that their companies “often” or “very often” celebrated acts of ethical leadership.

What do compliance experts see as the challenges in creating effective programs with measurable, proven results? “It is so easy in compliance and ethics to read the guidance and say, ‘Ok, there are seven hallmarks we are supposed to hit according to the Federal Sentencing Guidelines and we can check off all those boxes,'” says Amy Monk, legal and compliance counsel for Albany International, a global textiles and materials processing company. “What makes a really effective and robust program is making sure those compliance and ethics metrics live in job descriptions and everyday decision making. What we aim to do with ethics and compliance is to really bring it down to the most basic level in your day-to-day job, where you have opportunities to make ethical decisions and opportunities to bring compliance to life.”

Shaping company culture becomes even more challenging as companies grow and expand, says Neil Gardner, vice president of ethics and compliance for Orbital Sciences, a company that manufactures and launches satellites. “You've got a continuous wave of people coming into the company and if you are a geographically dispersed company there are a lot of variables at play,” he says. “You can think you understand how company culture is, but a lot of it comes down to the sub-culture within each one of those locations. You've got to keep a finger on the pulse and talk to a lot of people. You also need to do surveys and benchmarking so you can not only see where you are at as a company, but also compare how you are doing within your industry.”

The View on the Frontline

What Most Everyone Does

A new survey, the “2014 Ethics and Compliance Program Effectiveness Report,” by ethics and legal compliance consultant LRN, was unveiled at the Compliance Week 2014 conference in Washington D.C. In assessing what elements top-rated companies include in their programs, it found some common denominators among the entire pool of businesses it surveyed. The following is from that report.

Regulators and other concerned parties recognize that there is no ideal—that each program and company is unique. That said, there are minimum regulatory standards, as well as a developing consensus around the fundamental requirements for ethics and compliance programs, generally. For this reason, it is not surprising to see code of conduct, helplines, training, and other basics high on the list. Other items might be less obvious, but all are sufficiently prevalent to suggest that practitioners should attend to them or consider something substantively similar. To the degree indicated, ethics and compliance programs:

  • Use audit findings to inform their ethics and compliance risk assessment (90 percent)
  • Deploy online learning modules for at least some of their employees (89 percent)
  • Target at least some of their education and communication at their entire enterprise (88 percent)
  • Have made at least substantial progress on providing employees with a secure and anonymous channel for reporting concerns (87 percent)
  • Use employee email to raise awareness on E&C issues (87 percent)
  • Have made at least substantial progress towards the deployment of their codes of conduct with associated policies and procedures (86 percent)
  • Report helpline and investigations data and trends to their boards (86 percent)
  • Have as “very important” program goals to increase employee comfort with speaking up and to ensure employees use the company values as a framework for decision-making (84 percent)
  • Use data about reported misconduct (e.g., from the helpline) and code of conduct violations to inform their E&C risk assessment (82 percent)
  • Have completed building capacity for confidential reporting and internal investigations
  • Plan to keep their staff the same size this year (76 percent)
  • Report key risk assessment and mitigation plans to their boards (75 percent)
  • See themselves as drivers of culture in their organizations (74 percent)
  • Use company intranets to raise awareness on E&C issues (72 percent)
  • Report education completion and certification rates to their boards (72 percent)
  • Measure the effectiveness of their education using completion rates and employee feedback (70 percent)
  • Use regulatory enforcement trends to inform their E&C risk assessment (70 percent)
  • Report code of conduct violations to their boards (70 percent)
  • Use print materials (e.g., posters, quick reference guides, brochures) to raise awareness on E&C issues (69 percent)

Source: LRN.


United Technologies Corp.—a multi-national conglomerate that includes Otis Elevator Company and Sikorsky Aircraft among its business units—relies upon 500 ethics officers spread throughout the world to maintain a consistent company messaging. “We have one code of ethics for the entire world,” explains Yan Tougas, ‎director of global ethics and compliance programs. “It is one set of values, principles, and behaviors that are expected no matter where we do business. But it is written in fairly general terms to allow localization. We will say, for example, that if you are offered a gift from a customer or supplier you can accept it only if it is reasonable in value and frequency. What is reasonable in value and frequency will vary greatly. A $50 lunch in the United States may be fine; in certain countries it represents an employee's month's salary.”

“I don't have to come up with several messages on ethics and compliance that will work well in Russia, India, or Brazil,” says Tougas. “If I have the right drivers in place, it happens on its own.”

The focus the LRN survey places on training and education echoes the approach Gardner takes at Orbital Sciences. “We have to train people on the importance of the government regulations that are imposed on us,” he says. “But you have to connect with them, and training can be very monotonous, boring, and painful. We have a lot of younger, engineer types. In order to engage them you have to be bit more creative and come up with new ideas. It has to be dynamic, and it has to get their attention and keep their attention.”

“Training is an evolving concept in and of itself,” Monk says. “Obviously, there is a lot of value in the straight online training we do. There is the old school training that is there to check the box, and then there is bringing it to every interaction you have with people, which is more what we are about here.”

Tougas agrees with the weight the LRN study places on rewarding employees for compliant behavior. “When you recognize an employee for exceptional ethical behavior, your target audience should not be limited to that one employee,” he says, “The target audience is all the other employees who might one day face the same ethical dilemma. Your message is: ‘Look, this is the behavior we expect from all of you.  This is in line with our values.' We can leverage it as a platform to tell everyone else what the expected standard is.”

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