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Shop Talk: The ROI of a Strong Ethical Culture

Jaclyn Jaeger | January 15, 2013

Nobody ever said building an ethical corporate culture would be easy—but in today's global, hyper-connected business world, the task of driving consistent corporate practices and effective leadership structures is an unenviable one.

THE PANELISTS

The following executives participated in the Dec. 11, 2012, roundtable on the ROI of a strong ethical culture.





Kathi Argiropoulos,
General Counsel,
ARC Corp.




Wayne Brody,
LRN




Karen Bruntrager,
Director of Regulatory Compliance,
United States Pharmacopeia




Trisana Cephas,
Director of Internal Controls,
Viacom Inc.




Matt DeFrank,
Senior Corporate Counsel,
CarMax




Martha Durcan,
Chief Compliance Officer,
Parametric Technology




Adelle Elia,
Ethics Officer,
GTSI Corp.




Frank Geovannello,
Manager, Compliance & Integrity,
Altria




Letha Hammon,
Corp. Ethics & Compliance Officer,
DuPont




Ellen Hunt,
Director, Ethics & Compliance,
AARP




Paul Liebman,
LRN




Jim Ward,
Associate VP of Ethics & Compliance,
Georgetown University




Sam Yoon,
Director of International Compliance,
General Dynamics





For More Information on Compliance Week Roundtables

At the same time, the need for companies to rethink how they mold and measure corporate culture has never been greater.

As new regulatory and compliance risks emerge and existing risks intensify, many companies are realizing that the traditional hierarchical approach to structuring the business isn't working. These companies are moving to a more collaborative governance structure, focusing on the company's long-term purpose rather than short-term success.

“Senior leaders across the country are increasingly thinking about and paying attention to culture—how to drive it, how to use it, how it impacts the company as a whole,” said Wayne Brody, of ethics and compliance advisory firm LRN, which co-hosted an editorial roundtable with Compliance Week last month in Washington.

During the event, a dozen ethics, compliance, and legal executives discussed how to drive a strong corporate culture, the benefits of such an endeavor, and the risks to leaving the development of culture to take care of itself. Many attendees agreed that one of the most difficult challenges is conveying the value of corporate culture beyond the profit motive, particularly in large, established companies that are already well-engrained in their habits, strategies, and viewpoints.

Ethics vs. Compliance

Rather than think about values—integrity, trust, and virtue—in an abstract way, consider the direction you want the company to take, said Brody. “What is the current state of the company? What do you want the future state to look like? What kinds of standards and behaviors will get you from one point to the other?”

The idea is for the organization's purpose and values to inform decision making and guide employee and corporate behavior. “That's when values can really start to drive culture,” Brody said.

Those ideas sparked a discussion about the dichotomy between ethics and compliance. As one executive put it: “If you can get ethics right, you can get the rules right.” The idea here is that it is far better to build a structure where employees feel the need to do the right thing out of the emphasis on shared values rather than on a series of rules to follow.

“Compliance as an outcome is possible, but you have to work at it,” cautioned Brody.

Not all attendees agreed that a values-driven approach can act as a cure to compliance ails. A values-based culture does not work in all companies, said Karen Bruntrager, director of regulatory compliance for United States Pharmacopeia. “Sometimes, the rules are the culture,” she said.

“You can teach values all day long, but values alone cannot address all the rules people have to adhere to,” agreed Adelle Elia, ethics officer for GTSI Corp. In some situations, any number of ethical outcomes may be possible and only one compliance outcome, she said.

The executives also discussed the difficulties of constructing a culture that can have the same influence on employees in different geographic regions and from different backgrounds, particularly when communicating values. “The task can be especially challenging when communicating with hourly employees who typically do not have access to e-mail and are working across multiple shifts,” said Frank Geovannello, manager for compliance and integrity at Altria.

The difficulty there, many attendees agreed, is how to engage hourly employees in a way that encourages them to see the value of compliance and ethics at the same level as salaried employees, who tend to have a vested interest in both the success and culture of the company.

One of the common themes roundtable participants converged on is that a prescriptive, reactionary culture leaves too many holes in the compliance net and doesn't achieve the goal of encouraging consistent ethical behavior.

“You can't draft enough rules to cover everything,” said Jim Ward, associate vice president of ethics and compliance at Georgetown University. “If somebody has a question about the rules, “part of the point we try to instill is, ‘Ask. We're a group. We want to talk about these things.'”

DuPont similarly encourages employees to ask questions. In every ethics and compliance presentation, the company uses what it refers to as a “standard resources chart,” which informs employees who they can turn to if they have an ethics or compliance issue and don't feel comfortable going to their manager, said Letha Hammon, corporate ethics and compliance officer for DuPont. 

“DuPont does not expect any employee to go through an ethical dilemma alone,” Hammon said. “‘Ask before acting' is the compliance message we really try to instill consistently throughout the whole organization.”

Constrictive Policies

Another opportunity is to recognize when existing policies may be inhibiting innovation as they are not flexible enough to meet a company's changing geographic footprint or product portfolio. “If you're doing it right, compliance is not viewed as a roadblock,” said Geovannello.


Letha Hammon, corporate ethics and compliance officer at DuPont (left) explained her company's “ask before acting” policy. Taking notes is Paul Liebman of LRN.



Matt DeFrank, senior corporate counsel at CarMax listened in as Frank Geovannello (right), manager of compliance & integrity at Altria, discussed how to create a culture for all geographic regions.



Other panelists agreed that compliance isn't adding value when it's just considered the department of “no.” “I want to make compliance a service function, rather than a control function,” said one of the attendees, because it's far better for employees to perceive compliance as helping them achieve company standards, rather than thwarting them from doing something because it contradicts company policy.

But getting there is easier said than done. Sometimes achieving compliance can seem easier than achieving ethics, because compliance relies on following a clear set of rules that you can develop training and policies around, said Paul Liebman, a compliance and ethics consultant with LRN, “but you have to figure out a way to do that with ethics and values, as well.”

“You can't simply tell people to ‘do the right thing,' because ‘do the right thing' means something different to everybody in various cultures,” Liebman added. When you say you want to be transparent, for example, you have to have a conversation about what that really means and how you plan to achieve that, he said.

Another aspect of building a culture that provides value in the organization is encouraging proactive thinking. Instead of knee-jerk reactions to problems that arise, employees learn to anticipate problems and consider the right course of action before they occur. That conversation of “what would you do in this situation?” needs to happen in advance of an issue, so that it can be tested, Liebman added. Creating those scenarios and training the company on how to have those conversations is a role perfectly situated for the ethics and compliance office, he said.

Third-Party Culture

Roundtable participants also discussed the various ways in which they integrate third parties into their corporate cultures. Some companies, for example, are training third parties on their rules, while others said they lay out their expectations in written contracts.


Wayne Brody of LRN talked about the increased focus on culture—“how to drive it, how to use it, and how it impacts the company.” Martha Duncan, chief compliance officer at Parametric Technology (right).



“The emphasis on third-party compliance often comes from a defensive perspective that focuses on ensuring that third parties are not engaging in behavior that may get the company in trouble,” said Jim Ward, associate vice president of compliance and ethics at Georgetown University. “Companies typically take a broader approach to their own employees, emphasizing technical compliance but also the importance of an ethical culture.” 

When it comes to mitigating the liability risks posed by third parties, the most important piece is to have a good, truthful story to tell the government if they come knocking on your door, said Liebman. “You're going to have to explain your behavior,” he said. 

The government will want to see the documentation that the company maintains as it applies to the oversight processes of third parties. “If you can give them a box full of documents that support a cohesive narrative of how and why you've dealt with your supply chain,” said Brody, “you'll be in a better position.”

To be a forward-thinking company today involves thinking not just about corporate culture at home, but about global culture. It's the organizations that can most effectively drive consistent ethical practices and leadership that will be the ones to separate themselves from the pack and drive long-term success.

 

  LRN REPORT FINDINGS

  Findings from LRN's Global Governance, Culture, and Leadership Assessment report:

  • Self-governance is rare across the world. Only three percent of the 36,280 employees in this study observe high levels of self-governing behavior within their organizations. The extremely low rate of self-governance is consistent across every demographic category, including country, industry, economic environment, language, and ethnic culture.
  • Self-governing organizations in all 18 countries in this study outperform other types of organizations across every important performance outcome, including higher levels of innovation, employee loyalty, and customer satisfaction; lower levels of misconduct; and superior overall financial performance.
  • There is a marked disconnect between the C-suite and the employees they lead. On average, the C-suite is three times—and in some countries up to eight times—more likely to observe their organizations as self-governing, more inspiring, and less coercive as compared to the overall employee population.
  • Trust, shared values, and a deep understanding of, and commitment to, a purpose-inspired mission are the three fundamental enablers of the self-governing behaviors that produce competitive advantage and superior business performance.

  Source: LRN.