Innovate or Get Marginalized? The Future of Ethics & Compliance Programs

by Friso van der Oord

LRN’s periodic surveys and assessments find that, while ethics and compliance programs have taken deep root across the corporate landscape in the past decade, often they remain in silos, running education and risk management programs peripheral to day-to-day business operations. Reliance on these narrowly defined programs is no longer adequate to meet the exacting demands thrust upon businesses in today’s marketplace; incremental increases of compliance budget and staffing levels for these programs are likely to have diminishing returns.

In fact, there may be a limit to what traditional programs can achieve—a limit that many companies have reached—when these programs are perceived and function primarily as a set of rules and procedures, that is, when they are “compliance” programs. Beyond a certain point, compliance activities can actually harm the organization, imposing unnecessary costs and undermining proper conduct.

Reputational Compliance

Reputational Compliance

A system that is overly-controlled, that has passed its optimal point of compliance activities, will engender backlash and bewilderment from those who are being controlled. Managers and other employees will balk at a sclerotic network of rules and processes, and they won’t—and in many instances may not be able to—comply. Rules and signoffs will be overlooked, and training courses never taken. Such backlash can actually move a program backward down the benefits curve. And when an employee population sees the compliance program as overly burdensome and poorly aligned with business reality, they will undermine the credibility of the entire enterprise.

And most ethics & compliance leaders now recognize that their programs are in need of a real overhaul. In a recent LRN poll, 72 percent of them indicated that their education programs will demand real innovation over the next 18-24 months, while 56 percent believe that it will be critical to rethink the measurement of their program effectiveness.

ethics and compliance program

10 Innovation Ideas

The challenge for companies now is to embed ethics and compliance more firmly and deeply into corporate culture and everyday business practice. Companies need to make compliance and ethics a core management discipline and mindset, akin to the adoption of safety and quality in the 1980s and 1990s as critical to every phase of the business operation.

In LRN’s 2012 Ethics and Compliance Leadership Report, a survey of more than 150 companies, we present detailed findings and recommendations on how ethics & compliance leaders can disruptively innovate their programs and move from a reliance on GRC (governance, risk and compliance) to a more holistic approach that fuses critical GRC elements with fundamental leadership behaviors and cultural attributes. From our full report I have selected the following 10 innovation ideas:

  1. Connect with Corporate Strategy and Business Practices: Starting with the board and senior management, make a thorough airing of the ethical and legal dimensions and ramifications of corporate strategy part of everyday decision-making. To make ethical considerations truly central to operations, they should be stitched into a wide variety of corporate practices, including performance appraisals, promotion and recruiting practices, what is celebrated, rewarded and punished, and customer service and sales training.
  2. Create a More Integrated Governance Model: Any further regulatory reform should not be used by companies as an excuse to reinforce functional compartmentalization and specialization, but instead should challenge organizations to shake up existing management practices and create a more integrated model for governing business conduct and ensuring sustainable performance.
  3. Activate Employees As Your Early Warning System: While historical data and other lagging indicators matter, they are no substitute for actively learning from the business and current practices. Structured interviews and employee focus groups at multiple locations are the best way to gather real intelligence about emerging risks. Whenever possible, ethics and compliance leaders need to engage front-line managers, subject matter experts and employees at different levels to capture hidden pockets of risk.
  4. Spot Hidden Drivers of Unethical Conduct: While companies have made significant investments in ethics and compliance programs and risk management capabilities, unethical and non-compliant behavior in business remains widespread. New research suggests that cognitive biases and existing business systems may inadvertently create dangerous blind spots that lead to significant ethical and compliance breakdowns. Focus, for example, on ill-conceived business goals and incentives that may unintentionally drive negative behaviors.
  5. Develop a Mindset of Shared Risk Accountability: As the risks emanating from relentless business and regulatory change are nearly limitless, E&C leaders and their peers in legal need to share ownership for risk identification and mitigation. Holding business leaders accountable for E&C risk assessment and management reinforces a culture of responsiveness and drives better operational outcomes because their teams gain a much deeper understanding of risks associated with such core business operations as manufacturing, engineering, research & development, and sales.
  6. Integrate Ethical Leadership into Standard Job Training and Development: To drive the right leadership behaviors, values-based, ethical leadership should be firmly embedded in leadership development programs and on-the-job training, and be measured as a core performance attribute for employees at all levels.
  7. Tell Stories About Values in Action: Regularly spotlight “ethical courage” stories of employees who spoke up anonymously about substantiated misconduct and laying out the company’s response and resolution of the problem. This not only helps reinforce what is acceptable and unacceptable behavior, but also bolsters employees’ confidence that worrisome conduct will be corrected when they speak up.
  8. Experiment with New Education Formats: Innovate and diversify the educational experience by leveraging multiple delivery formats (e.g., facilitated discussion and e-learning) and communications vehicles (e.g., social media, gaming and contests) to engage your employees on ethical decision-making throughout the year. Also, engage managers to help educate employees. They can act as role models and often bring lessons from the theoretical to the practical.
  9. Globalize and Localize: As your company is expanding globally, partner with ethics champions who have credibility in remote locations. Enlist them to deliver the E&C program locally, and work closely with them to ensure that corporate priorities are congruent. In group meetings, lectures or manager-led training, encourage discussions on ethics and compliance that are tailored to local laws, scenarios, and traditions
  10. Bring the Code Off the Wall and Into the Hall: In the course of organizational transformation towards a values-based culture, even the best newly revised code may collect dust without a compelling engagement plan that reaches audiences through a diverse set of educational delivery formats and communications channels. Enlist managers not only to deploy the revised Code, but also to make it part of regular business conversations, staff meetings and operational reviews.

LRN’s 2012 Ethics & Compliance Leadership Report is published as we approach the 10th anniversary of implementation of the U.S. Sarbanes-Oxley Act, which was hailed at the time as a major step toward restoring trust in corporate management and which led to similar legislation in other countries. With hindsight, we know that while Sarbanes-Oxley was important, it was just one step on the path to meaningful and successful ethics and compliance practice.

We now are at a critical juncture in the evolution of ethics & compliance programs, as robust foundations have been established but their impact on business conduct has been partial at best. This time companies themselves are in the driver’s seat to make ethics & compliance a more meaningful part of how business really gets done.

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Friso van der Oord is a knowledge and solutions leader in ethics, compliance, governance and leadership at LRN.

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