Many companies’ ethics and compliance efforts focus too much on checklists and not enough on culture and employees’ behavior, says LRN report
Effective ethics & compliance programs don’t just focus on rules and regulations – they highlight their company’s culture and values and the corresponding behaviors, finds new LRN report on compliance program effectiveness
As the regulatory bar gets higher for U.S. corporations, employee and manager behavior and how to influence it for the better has become even more important for business leaders. But many CEOs, General Counsels and Chief Compliance Officers focus too much on checklists of program elements, instead of people’s behavior – and their ethics & compliance programs suffer as a result.
That’s according to LRN‘s recently published Program Effectiveness Index Report. It finds that firms with the most effective compliance programs look to the presence or absence of ethical behaviors – like ethical decision-making, organizational justice and freedom of expression – to measure program effectiveness, as opposed to counting how many training courses, hotline calls or other compliance program elements take place.
The LRN research finds that too few companies take a “values-based” approach to shaping employee behavior. In its new survey of over 550 ethics, compliance and legal experts around the world, under half (49 percent) say the C-suite engages them while making strategic decisions, and even fewer (45 percent) say C-level executives consider ethical behavior a prerequisite for promotion. In addition, only half of the ethics officers say middle managers at their firms believe they are responsible for assessing ethics & compliance risk for their business and teams.
“At their core, all ethics & compliance programs focus on dissuading misconduct, ensuring it is reported when it occurs and preventing retaliation,” says Mike Eichenwald, who leads the Advisory practice at LRN and advises companies on leadership and how to build ethical cultures. “The best way to measure the effectiveness of any ethics & compliance program is to look for the presence or absence of ethical behaviors across the organization – not of program elements.”
“Rules alone aren’t enough to ensure an ethical corporate culture,” adds Susan Divers, a Senior Advisor at LRN. “For example, the global financial crisis unfolded in 2008 despite a multitude of rules, policies, codes of conduct and controls – including at offending institutions.
The LRN research found that ethics & compliance activities that actually generated ethical behavior in employees and managers were often associated with three program elements: effective communication, core organizational beliefs expressed in behavioral terms and buy-in from managers and the C-suite. Among the survey’s key findings:
- The vast majority of chief ethics & compliance officers at companies with the most ethical cultures (90 percent) say their middle managers are enabled to help communicate the firm’s code of conduct throughout the organization. But out of all respondents, almost half (48 percent) said that it is sometimes or almost never true that their organization develops and/or coaches middle managers to promote their ethics & compliance program.
- About 80 percent of compliance officers agree that expressing core values in behavioral terms is an important part of the ethics & compliance process. Among the top quintile of companies in terms of having an ethical culture, almost 90 percent of ethics & compliance officers have integrated their companies’ core values by expressing them as specific behaviors in their codes of conduct.
- A plurality of middle managers do not know they are accountable for implementing ethics & compliance programs. Just over 60 percent know they should actively support their firm’s overall compliance program, according to the LRN survey.
- The C-suite can foster ethical culture and behavior throughout an organization. Over 70 percent of ethics officers said their C-suite holds leaders accountable for ethical behavior.
“Having a strong, values-based corporate culture can lead to a simpler, clearer and more effective E&C program than a checklist of rules and multiple layers of policy,” says Eichenwald.