The E&C Pulse | March 14, 2019

5 Traits of High-Impact Ethics and Compliance Programs

What are the differences between organizations considered to have high-impact ethics and compliance programs, and those thought of as low-impact?

LRN’s E&C Program Effectiveness Report 2019, released Wednesday, ranked programs based on the responses supplied by around 500 compliance, ethics and legal executives. Those scoring 80% or better of positive responses are deemed high impact; low-impact programs scored 65% or less.

The report identified five characteristics that distinguish a high-impact program--one that inspires employees to behave ethically--from a low-impact one.

High-impact programs go beyond meeting regulatory requirements to emphasize ethical behavior

Programs where rules-based behavior takes precedence may find that strategy could create unintended consequences, such as people looking for ways to circumvent the system. Employees that just follow rules often don’t think about the values that underpin them.

“Some of the recent scandals involving airline employees who followed their rule book to the detriment of their passengers' well-being are good illustrations of the pitfalls of a rule-centric ethics and compliance model,” stated the report. “They show that real-life situations can evolve quickly, and because of that, employees need a moral compass, not a five-pound manual, as a guide.”

High-impact programs directly affect business decisions

The best programs weave ethics and compliance into everything they do. By emphasizing ethics in training, policies and procedures, high-impact organizations create the conditions for employees and managers to make ethical decisions in the best interests of the business. Programs ranked as high impact in the report reported twice as frequently than low-impact programs that ethical considerations resulted in the modification or abandonment of a business initiative.

“Consistent with findings in previous years, high-impact programs are about three times more likely to act as both business counselor and corporate conscience, while also fulfilling their legal and regulatory function, than low-impact programs,” stated the report.

High-impact programs permeate their organizations and stakeholder groups

The work of preventing bad behavior is not left solely to compliance and legal in the best-functioning organizations. This matters because the workplace often takes its cue from the actions of senior leadership and the board.

LRN's The State of Moral Leadership in Business 2019 report, released last month, found 89% of managers don’t lead with moral authority when their chief executive doesn’t regularly exhibit moral leadership.

Furthermore, managers who fail to lead with moral authority are 42 times more likely to believe that individuals will be ignored if they take a stand for doing the right thing, and 34 times more likely to believe that they will be punished for doing so.

High-impact programs hold senior leaders accountable

The primary responsibility of a board, from an ethics and compliance perspective, is to hold senior leaders accountable. The report found the best programs excel at driving ethical values through specific actions; they not only call out misbehavior, but recognize and applaud good behavior.

More organizations are including ethical behavior as part of performance reviews, when setting compensation levels, or when deciding promotions. The report found middle managers at high-impact programs are more than twice as likely to consider ethical behavior when reviewing or promoting employees than their counterparts at low-impact programs.

High-impact programs take a proactive and comprehensive approach to managing risk

The best programs are focused on analyzing and mitigating risk to prevent misconduct, have a better understanding of their risks in the C-suite, and develop middle managers who own their compliance failures. Risk is a key factor in operationalizing compliance.

“Static programs that rely on layers of inflexible rules may not be capable of meeting the needs of employees when they are faced with the new risks of an evolving business landscape--risks that can disrupt or threaten an organization's operations,” stated the report.

The best programs more often rely on root-cause analysis to figure out what led to misconduct, and their audit functions spend time on compliance risks.

“It is much more important to remediate the underlying process and culture problems, at whatever level they may be found, than to penalize a few employees who are more often than not a symptom rather than the problem itself.”

Ben DiPietro
@BenDiPietro1
ben.dipietro@lrn.com

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