Measuring Compliance Program effectiveness

As the headlines show, having the components of an ethics and compliance (E&C) program in place, such as a hotline, code, training or policies, doesn’t guarantee effectiveness. The central lesson that we have learned—from our ongoing research and our experience with hundreds of organizations over the decades—is that a values-based approach to governance, culture, and leadership correlates strongly with greater business outcomes and reduced risk. These organizations produce better financial results, boast greater innovation, stronger customer satisfaction, higher levels of employee engagement and, critically, reduced levels of misconduct as well as a willingness to report wrongdoing when observed. Moreover, our research consistently shows that these organizations are significantly more successful at integrating ethics and compliance into their day-to-day operations.

LEARN THE LATEST IN OUR 2021 E&C PROGRAM EFFECTIVENESS REPORT

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LRN’S PROGRAM EFFECTIVENESS INDEX ANALYZES E&C IMPACT

 

Our research demonstrates conclusively that "operationalizing" ethics and compliance in all aspects of the business enables leaders and employees to think and act based on shared values rather than on short-term expediency or minimum legal requirements. It follows, then, that evaluation of E&C programs should be based on how they impact their organizations' operations and workplace behavior—not whether they satisfy a checklist of criteria.

Consistent with this perspective, we created a Program Effectiveness Index (PEI). This proprietary framework analyzes not only the components of corporate E&C programs but also the impact these programs actually have on workplace behavior. You can learn more about PEI in our 2021 E&C Program Effectiveness Report.

 

5 MEASURABLE FACTORS OF EFFECTIVE COMPLIANCE PROGRAMS

 

The central challenge for E&C professionals and their organizations is how to operationalize ethics and elevate workplace behavior. Framing the challenge in this way is consistent with the approach taken by the Department of Justice’s guidance on corporate compliance program effectiveness—that is, to prioritize results over program content. Below are five factors you can measure to determine the effectiveness of your E&C program. 

DOES IT GO BEYOND MEETING MINIMUM REGULATORY REQUIREMENTS TO EMPHASIZE ETHICAL BEHAVIOR?

More and more organizations are going beyond the minimum and asking their employees to live their values—not merely follow rules. According to our 2021 E&C Program Effectiveness Report82% of professionals stated that their firms emphasized company values rather than rules and procedures, to motivate employees to do the right thing. E&C programs driven principally by a desire to solely meet regulatory requirements can have unintended negative consequences, sometimes sending employees hunting for ways to bypass the very processes designed to uphold those rules. Codes of conduct and policies that align values-based behaviors with an organization's business goals, coupled with training that emphasizes ethical decision-making, can inspire positive behaviors instead of checking boxes on regulatory requirements. 

IS IT DIRECTLY INFORMING BUSINESS DECISIONS?

Organizations are increasingly modifying or abandoning business initiatives because of ethical considerations. Our latest research found that 71% of professionals reported that senior leaders integrated ethics and compliance considerations into their decision-makingHigh-impact E&C programs have created procedures, policies, and training that more effectively promote ethical behavior among their employees and leaders while fostering better decision-making for the business. This emphasis helps make E&C training programs part of doing business rather than an annual obligation.

DO LEADERS AND KEY STAKEHOLDERS REINFORCE AND SUPPORT IT?

Our research shows that when CEOs do not consistently behave as moral leaders, 89% of the managers under them fail to lead with moral authority. Further, respondents surrounded by 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 thingand 34 times more likely to believe that they will be punished for doing so. 

It is incumbent on boards of directors as well as executives to deal effectively with ethical lapses, particularly those that occur at the C-suite level. High-impact E&C programs have engaged boards that employ a multitude of initiatives to reinforce and support the program. In addition, E&C leaders should not be the sole owners of ethics and compliancewhen all leaders take responsibility, it elevates the ability of the program to operationalize key initiatives.

DOES IT OUTLINE CONCRETE STEPS TO FOSTER ETHICAL BEHAVIOR?

Recognizing that actions speak louder than words, effective programs do a better job of encouraging and rewarding good behaviorand also penalizing misconduct. 79% of the executives and experts we surveyed this past year reported that their organization’s ethical culture emerged stronger by virtue of the way they coped with the COVID-19 crisis, particularly as it related to their E&C program. 

DOES IT TAKE A PROACTIVE AND COMPREHENSIVE APPROACH TO MANAGING RISK?

When developing training for employees, successful programs thoroughly understand their specific risks in their industry, geographic concerns, spending authority, incentives, and quotas. Develop training programs around these risks allow you to proactively build a program that is adaptive instead of being one-size-fits-all. 

Operationalizing compliance around these risks can address existing challenges and get ahead of future ones. 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. That explains why high-impact programs update their risk analyses more frequently than lower-impact ones. 

Their audit programs, too, address broad compliance risks, not just financial controls—high-impact programs are 2.5 times more likely to do so than low-impact programs. We see this reflected as well in mergers and acquisitions (M&A), with more M&As than ever now including analysis of compliance risk in their pre-deal due diligence and ethics and compliance having a seat at the table.

EFFECTIVE E&C PROGRAMS ARE PROFITABLE 

 

One common obstacle that E&C officers face in implementing an effective program is the perceived trade-off between ethical business practices and profit margins. Our research shows that the two aren’t mutually exclusive. In fact, 97% of values-based organizations display better performance than their competitorscompared to 80% and 30% (respectivelyfor more traditional command-and-control or rules-based organizations. Furthermore, the risks posed by lack of moral leadership are costly. The 2020 State of Moral Leadership in Business found that 67% of senior leaders said they’d be willing to leave their organization if their CEO didn’t act on a moral issue, and that employees were 12 times more likely to leave if a direct manager didn’t exhibit moral leadership. 

In short, effective programs are more likely to: 

  • Emphasize ethical behavior in addition to regulatory requirements
  • Ensure that ethical considerations permeate all business decisions
  • Embed E&C values in their governance processes
  • Utilize a multitude of tools to identify, remedy, and prevent misconduct
  • Engage all stakeholders in supporting and reinforcing ethics and compliance, rather than relying solely on lawyers and E&C staff
  • Reward ethical behavior and punish misconduct at all levels of organization
  • Take a proactive and comprehensive approach to managing risk

THE PATH FORWARD

 

Our 2021 Ethics & Compliance Program Effectiveness Report provides definitive support that following a values-based approach substantially benefits organizations when operationalizing E&C in a manner that is consistent with the April 2019 DOJ guidanceIf you’re ready to begin building an E&C framework that operationalizes your values throughout your organization, our Advisory Services practice has the experience and tools to guide you through this process.

Ready to improve your E&C program effectiveness?

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