Which behaviors and attributes differentiate truly effective ethics and compliance programs from those that are less effective? A new report released today offers some much needed clarity around the answer to that question.

The 2015 Ethics & Compliance Effectiveness Report, conducted by ethics and compliance advisory services and education firm LRN, examines the corporate contexts within which ethics and compliance (E&C) programs operate, identifying the effect of specific corporate strategic priorities, leadership behaviors, reporting structures, funding, and other matters on program effectiveness. LRN’s eighth annual survey was based on an analysis of 250 ethics and compliance programs.

The report is the third to feature LRN’s Program Effectiveness Index (PEI), which identifies the factors most commonly associated with an effective E&C program. The index defines “effective” programs as those that support the achievement of business goals, improve ethical behavior, and provide education and communication that effect employee decision-making. Companies are ranked relative to one another, on a scale of 0 to 1, based on their ethics and compliance program effectiveness, with an average PEI score of 0.57.

Meaningful Differences

According to the report, companies with top-performing ethics and compliance programs conduct assessments more frequently and use more metrics than companies that received low PEI scores. For example, 46 percent of highly effective E&C leaders who used supplier and business partner feedback in program assessments average “very impressive” PEI scores of 0.65, the report stated.  

Another meaningful difference: 49 percent of top-performing ethics and compliance programs, with an average PEI score of 0.62, have a Code of Conduct that emphasizes a values-based culture throughout, while only 21 percent of low-scoring companies do so.

The report also listed several behaviors that define what it means to have a strong tone-at-the-top. “Among those behaviors, none is more impactful than how often a member of the C-Suite addresses E&C issues in staff meetings, operational reviews, and similar settings,” the report stated. The 11 percent of respondents who reported that they often engage in this behavior  showed a high PEI score of 0.79, compared to the well-below-average PEI score of 0.51 for the nearly two-thirds of all respondents whose senior leaders bring up such matters rarely or not at all.

E&C programs in companies with C-Suite leaders who have these leadership qualities are almost twice as likely as all other programs to prioritize the connection between company policy and to day-to-day operations (64 percent to 34 percent). “They also are much more likely to have integrated corporate values in their code of conduct and to have employees who turn to their Code of Conduct when faced with an ethical dilemma,” the report stated.

Furthermore, middle management more commonly adhere to, and actively promote, E&C across their organizations when they receive such high level support. By wide margins, these companies were more likely to have experienced increases in overall compliance (29 percent), levels of speaking up (33 percent), and employee engagement (37 percent), according to the report.

Reporting Structures

The LRN report further confirmed that it is increasingly common for the leader of the E&C function to report directly to the CEO or the board of directors. The overall effect of those programs is significantly higher than those who report to the general counsel (GC).

One “surprising” finding is that, among the programs reporting directly to the CEO, those led by individuals acting as both the general counsel and chief ethics and chief compliance officer (CECO) are more effective on average than those led by dedicated CECOs, the report stated.

“Two reasons present themselves as potential causes of this gap,” LRN stated. The first is that GC/CECOs are twice as likely as dedicated CECOs to see their primary mission in terms of building ethical cultures, a principal driver of program effectiveness, the report stated. Secondly, GC/CECOs appear to have more management support and operational access than do the independent CECOs, “almost certainly as a result of the GC’s daily work with the CEO and other senior officials on business matters,” the report stated.

“As the data from this year’s report clearly demonstrates, successful E&C programs prioritize culture and values and operate within companies that do the same,” said Wayne Brody, a member of LRN’s ethics and compliance advisory services practice. “We hope that compliance officers will utilize the data and analysis presented to engage with senior leaders of their organizations around a determined, strategic focus on culture, based on values and exemplified by how they do what they do.”

LRN will be hosting a live webinar to discuss the findings of the report on Tues., June 23. To register or to learn more information about the webinar, visit http://bit.ly/1f5qbkI.

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