How does one measure the impact of a corporate compliance program? One of the key metrics of a corporate compliance program is to demonstrate the effectiveness of corporate compliance programs. Slowly but surely a body of work is being built up to demonstrate that companies which invest in greater compliance are more profitable. Recently the Ethics & Compliance Initiative (ECI) added to the growing body of work in the release of their report entitled “Measuring the Impact of Ethics and Compliance Programs” (the ECI Report).

In the ECI Report, they conducted a “cross-sectional study of the workplace from the employee’s perspective.” The ECI Report focuses on the impact of compliance programs on the workplace and most critically the statistical return on investment (ROI). Which ECI defines as “High Quality Ethics & Compliance Programs (HQPs).” The ECI Report defines five principles of HQPs as (1) a compliance strategy is central to a company’s business strategy; (2) a strong risk management program where risks are identified, owned, managed and mitigated; (3) there is a strong culture of integrity throughout the organization; (4) the entity encourages a speak up culture and values the reporting of concerns; and (5) there is clear accountability when wrongdoing occurs.

While noting that companies in any stage of compliance program development show a positive impact, it literally increases exponentially when a HQP is present or even when employees perceive a HQP is present. The results are stunning. First, when employees are encouraged to base their business decisions on a set of ethical values, favorable outcomes increased by a factor of 11X. When employees felt there was accountability in the organization for wrongdoing, favorable ethical outcomes increased by 12X. Finally, when a clear commitment to a speak up culture was present, favorable ethical outcomes increased by 14X. The bottom line is that HQPs made a big difference.

In a finding which would not surprise any aficionado of The Who’s rock opera Tommy,the ECI Report noted the key element is for employees to “see, hear and feel”. The ECI Report stated that when there was positive feedback for ethical conduct “favorable ethical outcomes increased by 10X.” When a company responded in a timely manner to a report of wrongdoing, “favorable ethical outcomes increased by 16X.” The report listed 15 separate HQP objectives for companies to strive towards. This list provides an excellent set of metrics against which you can measure your company’s program, as it currently stands and on a go-forward basis. This list includes:

  • Leaders are expected and incentivized to personally act with integrity.
  • Values and standards are clearly communicated.
  • Leaders are assigned responsibility for identifying and mitigating E&C risks.
  • Leaders create an environment where employees are empowered to raise concerns.
  • The E&C program aligns with the larger objectives of the business.
  • All employees are expected to act in line with company values, and are held accountable if they do not.
  • Employees are provided guidance and support for handling key risk areas.
  • Resources are provided to support employees in ethical decision-making.
  • Disciplinary action is consistently taken against violators
  • Investigations are objective, consistent, and fair to all parties.
  • The organization directly communicates with individual reporters.
  • The organization provides broad and varied avenues for reporting.
  • Proactive processes are created to prevent retaliation.
  • The organization appropriately discloses wrongdoing to authorities.
  • Key risk areas are identified through a robust assessment process.

The ECI Report then turned to whyhaving HQP matters and they found it comes down to culture, stating “the relationship between an E&C program and the culture of an organization is critical.” The difference between a HQP and a paper program is the difference in night and day. In HQPs there is an emphasis in ethical decision making across the business and not simply in the corporate compliance function. While this is driven by a commitment from the top of the organization, it is burning compliance into the fabric of the company which makes the biggest impact. Interestingly, this is precisely what the Department of Justice (DOJ) has been saying for years. This was also the key theme of the 2017 Evaluation of Corporate Compliance Programs.

The ECI Report concludes that if a company builds beyond the paper program stage, it will demonstrate real benefits in “building a strong ethical culture, reducing misconduct and increasing employee reporting when wrongdoing occurs.” Moreover, when both senior executives and the Board of Directors recognize their roles in shaping the conduct in an organization, ethics and compliance become a part of the culture of an organization. The ECI Report lists several areas to begin.

Senior executives and the Board of Directors should create an environment where employees are more than simply encouraged to raise concerns, they are empowered to do so. Senior executives and the Board of Directors should work to align the ethics and compliance program and its functions with the overall business objectives of the company. Senior executives and the Board of Directors should make clear there are real consequences to doing business in line with the company values. Employees should be provided the tools and support to do business ethically and in compliance. This means the compliance function is present and active in “providing guidance and support for handling key risk areas.” Finally, there must be institutional justice.

The ECI Report is a welcomed addition to the growing body of substantive literature demonstrating not only how to create an effective compliance program but also what constitutes an effective compliance program. The information gives clear data points to every Chief Compliance Officer (CCO) and compliance practitioner to present to senior management on why the investment in ethics and compliance pays off. In this day and age of almost instantaneous reputational risk, a robust ethics and compliance culture will help to prevent, detect and then remediate any lapses.

This publication contains general information only and is based on the experiences and research of the author. The author is not, by means of this publication, rendering business, legal advice, or other professional advice or services. This publication is not a substitute for such legal advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified legal advisor. The author, his affiliates, and related entities shall not be responsible for any loss sustained by any person or entity that relies on this publication. The Author gives his permission to link, post, distribute, or reference this article for any lawful purpose, provided attribution is made to the author. The author can be reached at tfox@tfoxlaw.com.

© Thomas R. Fox, 2018

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