Justifying the Role to Strengthen the E&C Function
Compliance as a profession continues to grow globally[i]. Compliance departments expand in response to every corporate scandal. Following increased regulatory scrutiny, the chief ethics and compliance officer role is becoming more elaborate and sought-after. However, inside organizations, CECOs still face a number of challenges. Vera Cherepanova offers practical ways to address concerns over CECO legitimacy.
The Chief Ethics and Compliance Officer (CECO) role initially emerged in response to regulatory initiatives. The Federal Sentencing Guidelines for organizations of 1991 (and the updated version of 2010) require that “specific individual(s) within high-level personnel of the organization” should oversee an “effective program to prevent and detect the violations of the law.” The New York Stock Exchange (NYSE), Financial Industry Regulatory Authority (FINRA) and the Securities and Exchange Commission (SEC) all require their members to appoint a CECO.
External Pressures vs. Internal Challenges
Apparently, the CECO function developed following the external pressures on businesses and increased regulatory scrutiny. With no obvious end to the new guidelines and rules coming down the pipeline, the demand for compliance officers seems to be certain. However, despite the well-established external legitimacy, CECOs still face challenges inside organizations.
They are often perceived negatively, as someone restricting employees’ freedom, and therefore, undesirable and even unpleasant. Those who see CECOs as interfering with the achievement of business goals tend to question the potential benefits they could bring. Moreover, for some of us, a CECO “teaching morals” is clearly crossing the line of personal space. The concerns over the business and moral justification of the CECO role, therefore, can be summarized as follows:
- It is difficult to assess a CECO’s effectiveness with direct bottom-line outcomes. Indeed, how do you measure the number of prevented violations? How do you interpret an increase in hotline reports – is it a good sign (employees feel more secure to share their concerns) or a bad sign (it reflects the increase in cases of misconduct)? The difficulty in defining and ascertaining effectiveness makes it challenging to demonstrate the CECO’s value to the business.
- In the absence of a crisis, ethics are often “taken for granted.” Without a pressing need to tackle compliance issues, both employees and leaders tend to think that no special focus on ethics is necessary, as it’s already there. Then how can a CECO possibly deliver anything of value?
- Some members of organizations hold very personal attitudes toward ethics. They believe ethics is something learned from parents, school or religious institutions and therefore has nothing to do with the workplace. They question CECO qualifications to judge their ethicality, and they show resistance to any unnecessary interference into their ethical lives.
- Compliance departments are sometimes seen as an obstacle to profit-maximizing imperatives. In organizations with sales-driven cultures, the tension arises from the shared beliefs that compliance and ethics are interfering with the pursuit of business success. With no obvious contribution to the bottom line, CECOs experience great pressure to prove they are not undermining sales results.
- CECO reporting lines may pose additional challenges. Notably, in those companies where the CECO is reporting to chief legal counsel, their objectives can clash. The lawyer’s goal of protecting the organization can conflict with the CECO’s goal of investigating and fixing problems, often involving cultural shifts and changes to the status quo. Uncovering ethical issues does not go in sync with attorney-client privileged conversations. Moreover, taking a “legalistic” perspective on the CECO role can hamper the ethical orientation of the program and turn it into mechanical, “tick-the-box” exercise.
Ways to Address Internal Challenges
The justification of the CECO role in the eyes of employees and leaders is paramount for the long-term effectiveness of the ethics program. Research confirms that rules perceived as legitimate induce more voluntary compliance than those perceived as unjustified and undesired. When such thinking exists, people feel personally obligated to comply. Therefore, to improve their internal legitimacy CECOs, may wish to undertake proactive steps toward better acceptance. Here are some of the ways to achieve willful cooperation.
Frame ethics as an opportunity, not as a constraint.
Move away from the image of compliance as a business impediment. Show alignment with business needs and objectives by demonstrating the long-term benefits of an ethical approach. Leverage the argument of the competitive advantage over other companies. Make a business case for compliance in the context of your company, so that your colleagues have a better understanding of what you do for the business.
Leverage the potential synergies between ethics and compliance.
Obviously, there can’t be a rule for everything, and this is a perceived weakness of compliance. Alternatively, there can be situations when there was no breach from a legal perspective, yet the behavior was unethical. Focusing on rules only may not bring the desired behavioral results. Treat compliance as a bare minimum and bring along the overarching concept of ethics, emphasizing the values and culture of “doing the right thing.” Appeal to nobler motives by leveraging a more aspirational ethics side of your work.
Do field drives with the salespeople to better understand their job and the ethical risks they face. Use interpersonal ties to develop your trustworthiness. Really listen to employees’ concerns. Even if you have to say “no” to an idea, treat them with respect and show that you understand their perspective. Always ensure confidentiality for those who report unethical conduct, whether through a hotline or personally. Protect whistleblowers to demonstrate you are able to truly help them with their ethical concerns.
While the CECO role can hardly be questioned from a perspective of legal compliance with regulatory guidelines, how the CECO and his job is actually perceived inside businesses can still raise issues. A lack of justification of the compliance function in the eyes of employees and leaders can compromise the program’s effectiveness. Therefore, CECOs should be proactive in addressing their internal legitimacy. The proposed steps will increase understanding of the CECO’s job, its value and appropriateness for the organization, contributing to the long-term success of the ethics and compliance program.
[i] The U.S. Bureau of Labor Statistics projects the occupation will grow by 8.2 percent through 2026.