Being a good person isn’t good enough

Organizations have laws about acceptable and legal behavior and practices to prevent or punish transgressions. Many of these rules are common sense—such as prohibiting the physical assault of a co-worker or embezzling funds.  But some are less obvious, such as the amount of a gift given or received, and others are subject to interpretation, for instance what constitutes an appropriate comment to a subordinate.

Additionally, many organizations are subject to a multitude of government laws and regulations, which in many cases differ by country.

All this is why the field of business ethics and compliance exists—to help organizations:

• Understand and conform to guidelines of ethical and legal behavior, which will…
• Prevent unacceptable or illegal practices, which in turn…
• Reduces or eliminates potentially catastrophic financial and reputational risks.

Click on one of the links below to learn more about a variety of topics related to ethics and compliance:

• The Cost and Risk of Poor Ethics and Compliance
• The Business Value of Ethics and Compliance
• The Power of Ethics and Compliance
• The Myths of Ethics and Compliance
• The Global Compliance Risk Readiness Checklist
  

Weak or absent compliance programs increase risk

The facts are clear:  In organizations with weak or no compliance programs, the incidence of both fraud and observance of non-compliant conduct is significantly higher.

• Nearly 60% of employees have personally witnessed conduct that violates their company’s ethics standards or the law:
  • That figure is as high as 96% in U.S. companies with perceived weak or no programs
• Globally, companies experience fraud-related activities at higher levels:
  • On average, 85% have suffered from fraud in the past 3 years:
    • 89% in Europe
    • 84% in the Asia-Pacific region; as high as 96% in China

SOURCE: Ethics Resource Center: National Business Ethics Survey®; KROLL Global Fraud Report: 2009/2010

The bottom line: The cost of implementing an ethics and compliance program are a small fraction of the potential costs of damage to your reputation or bottom line due to an ethics or compliance violation.

Why are the words “ethical” and “well-managed” often used to describe the same organizations?

Think about it: What are the attributes you expect to find in an ethical and compliant organization?  Top down accountability, effective decision-making processes, good internal communications, excellent documentation, high productivity, effective business controls and consistent standards all come to mind.

Aren’t these the very same characteristics found in what we would consider successful and well-managed organizations?

Organizations that focus on ethics and compliance tend to outperform their peers financially.

It should come as no surprise that there is growing research to indicate that there is a “Corporate Responsibility Premium"--organizations that meet the criteria of being “good corporate citizens” tend to outperform other organizations on key financial performance metrics such as shareholder return.

In other words, organizations shouldn’t just consider an ethics and compliance program when they have to—by law.  The fact is that having a culture of ethics, integrity and responsibility is a key means to achieving the goal of excellent overall organizational performance—for both public and private companies, academic institutions and non-profits.

Examples of how ethics and compliance helps drive success

• Sales and Marketing - Good expectation setting drives customer satisfaction and loyalty; Metrics-oriented

• Customer Service - Better understanding of customer expectations increases satisfaction and, therefore, customer retention
• Human Resources - Attracts more qualified applicants; Reduces turnover; Better alignment with organizational priorities
• Finance and Accounting - Disciplined spending; Appropriate controls; Proper disclosure
• Research & Development - Good understanding of risk; Motivation to innovate
• Information Technology - Better alignment with organizational priorities
• Legal - Less time and resources spent on litigation

The bottom line

Organizations that actively pursue a culture of integrity tend to experience reduced risk to their reputation and bottom line, which therefore makes them more profitable, and ultimately, builds better long-term brand value.

Here are two examples of actual situations we’ve encountered through the years that demonstrate, in very simple terms, the practical value of establishing a culture of ethics and compliance.

“Message intended vs. message perceived”
Many years ago, a large multinational consumer products company asked us to do a baseline assessment of their ethics and compliance culture. In focus groups around the world, we talked to employees about what the company’s priorities were as they saw them.

All over the world, we heard three priorities:

• Make Plan.
• Make Plan.
• Make Plan.

Nothing else was even close.  The CEO was astounded: “When I tell people to make plan, of course I mean to make it in the right way.”

We gently suggested he incorporate this nuance in his communications.

We worked with the company to develop a customized employee awareness and education campaign that incorporated the theme, “’Make Plan’ means making it the right way.”  And over time, employees got the message.  Now, employees say that “making plan” is still the number one priority, but they do have other strong candidates for the other priorities: quality, safety, and responsibility, to name a few.  

This is an example of how good implementation of an ethics and compliance program can shape a global culture.

“Taking the first—and most important—steps”
On a more local level, Steve Priest, one of our in-house expert advisors at the Ethical Leadership Group (ELG), was co-leading an ethics and compliance training session for managers in a geographically isolated business unit of a large utility company.  After one of the sessions, a self-described “old-timer” asked Steve if he would like a little tour.  At the end of the tour, the self-appointed tour guide turned to Steve and said, “Thank you for setting us free.”

It turns out that this location had been led by a very difficult manager for years. He was described as a trash talking discriminator with an unpleasant habit of retaliating against anyone who complained.  After the manager executed a number of successful retaliations, employees—who felt lucky enough to have a good job in this small town—decided to start keeping their complaints to themselves.

One day, the company’s Ethics Officer and a few other executives flew in to have a town hall meeting, with ethics and compliance as a primary theme.  This ‘old timer’ said that, “then and there I knew I would take the risk—the company seems like it is finally serious about this.”  He called the Helpline.  An investigation corroborated his allegations—and more.  The difficult manager was dismissed.

Through our decades of work in the ethics and compliance arena, Global Compliance has seen and heard a wide range of myths and misconceptions—from the meaning of ethical behavior to the definition of an acceptable program.  This list contains just some of the examples; if they seem familiar, perhaps it’s time to evaluate your need for an ethics and compliance program or for enhancing your current program.

• The general guideline we give our employees is that being a good person is good enough.
• If my boss says something is ok then it’s ok.
• Having an employee hotline means we have addressed ethics and compliance issues.
• If we develop a code of conduct, our employees will read and understand it.
• If we develop a code of conduct, that makes us compliant.
• Our training is kind of boring, but just the fact that our employees attend means they must be absorbing some of it.
• We put a lot of effort and resources into our compliance program last year—that should last us another few years.

Is your organization risk-ready?

Based on our thousands of client engagements, Global Compliance has defined comprehensive checklists to help organizations identify their ethics and compliance readiness.  Here are just a few of the questions on our checklists:

• Does your organization currently have a code of conduct?
• Does your organization currently have ethics and compliance policies?
• Do your employees trust that they can report concerns without fear of retaliation?
• What options or tools do employees have for reporting these concerns?  
• Do your employees trust that management will respond to reported issues appropriately and report back on progress?
• Do employees at your organization receive training on ethics and compliance issues?
• When was the last time your organization’s ethics and compliance policies were reviewed by a credible third-party?
• Does your organization validate its compliance with organizational policies and procedures via routine on site evaluations?
• Do you have the information necessary to understand how your organization’s program compares to your peers and competitors?
• Do you train the people who manage and investigate ethics issues about best practices and techniques?
• Do you remind employees throughout the year about expected workplace behavior?
• Are you aware of ethics and compliance trends and news?