This week, in this podcast series on the FCPA Compliance Report, I visit with Patricia Harned, Ph.D., the Chief Executive Officer (CEO) of Ethics and Compliance Initiative (ECI), about the firm’s 2018 Global Business and Ethics Survey (GBES). There were four GBES reports released by ECI in 2018: Q1-The State of Ethics & Compliance in the Workplace; Q2-Measuring the Impact of Ethics & Compliance Programs; Q3-Building Companies Where Values and Ethical Conduct Matter; and Q4-Interpersonal Misconduct in the Workplace: What It Is, Where It Occurs and What You Should Do About It.

Q1-The State of Ethics and Compliance in the Workplace

The study was designed to take the pulse of employees in business workplaces. ECI has been doing this since 2000 and the survey has become, over time, the global benchmark on ethics in the workplace. Harned said, “every couple of years we ask employees about the extent to which they are observing misconduct and some of the other patterns and their perceptions of culture.” The good news is that fewer employees indicated that they have observed some type of wrongdoing, as defined by whether it was a violation of their company’s standards or the law, within the past 12 months. While the number was still high, at 47%, those responding told ECI they had observed something, this is lower than has been observed in quite a long time.

When it comes to reporting observed misconduct, Harned said, “The big question is, will people come forward and alert management to misconduct? And again, we found good news when we did this update to this study. 69% of employees told us that if they had observed some kind of wrongdoing, they found a way to report it to management in some way, shape, or form. That’s actually the all-time high highest level of reporting that we’ve had in the history of this study.” Unfortunately the news on pressure employees felt to compromise ethics standards was not as positive.

Harned noted, “16% of respondents told us that they are feeling some sort of pressure to compromise standards just to get their job done. That is the highest level of pressure that we have seen in the history of the study.” When you couple this with the fact that “84% of people who told us that they are feeling pressure are also observing some kind of outright violation in their workplace”; it becomes a worrisome metric. It is certainly not a good sign that pressure is on the rise.

Regarding retaliation, the study found 44% of respondents indicated that “if they reported misconduct to management, they experienced retaliation for having done so and that rate has doubled since the last time we took that measure.” Harned characterized this as “an alarming number for a lot of reasons. One, because we’ve seen over the years that retaliation is a leading indicator of a declining culture. If you think that if you come forward to report wrongdoing, you are going to be harmed for having done so, employees are going to be quiet in the future and problems will persist.”

We concluded by looking at culture which is such a powerful influence on people’s attitudes about how real their code of conduct is at their organization down to their individual workplace. Harned believes that culture not only trumps compliance “every day of the week” but also that “it is a huge influence on employees own decisions when they don’t know what to do.” Unfortunately, one of the things the survey found was the percentage of people who say they work in workplaces with strong cultures has not substantially increased over the past years. Yet when employees are working in companies with strong cultures, it makes a huge difference. The survey found 88% “of people who say they work in a strong culture reported wrongdoing if they observed it, and the level of retaliation was 43%, still not at the great greatest of numbers, but certainly less than if they’re working in an organization with a weaker culture”. The bottom line is that employees are far less likely to say they feel pressure to cut corners if they are working in an organization with a strong culture.

The outcome is that conduct in US workplaces continues to shift. Based on historic findings and current indications, ECI suggests that leaders brace for employee conduct to worsen in the days ahead.

 Q2-Measuring the Impact of Ethics & Compliance Programs

This study was designed by ECI to actually look at data from employees and determine if a higher quality ethics and compliance program makes a bigger difference than having no or a minimum standard program in place. Initially, we began with a discussion of what is a “high-quality program”. Harned said, “over the years we’ve certainly as an industry talked about what does it mean to have an effective program. Often in our industry, by default, you talk about the minimum standard, the expectations of enforcement agencies or regulators or language in regulation or the law. And one of the things that ECI has wondered about over the years is whether that really is an inadequate definition of a very strong ethics and compliance program. So we convened a blue-ribbon panel in 2016 that helped us to work out a definition of what a high-quality program might look like.”

We then turned to the definition of a high-quality program. Harned identified principals elements, because “when you look across companies that really get it right, there are five principles that are essentially their way. First companies see ethics and compliance as central to their business strategy. It is understood within the organization not as an add-on or nice to have but as being primary to the success of the business. The second is that risks are identified and owned and managed and mitigated by leaders across the organization. The third is that leaders at all levels and across an organization recognize that they have an impact and a responsibility to build and sustain a culture of integrity. The fourth is that the organization creates an environment where people are encouraged and protected to come forward and report wrongdoing. And the fifth thing is that people are held accountable if they violate the standards. In past reports we’ve done, we’ve elaborated on that. What are some of the practices? What does it actually look like that’’ all available to the public on our website? But overall, we also look at certain kinds of outcomes of people who observe misconduct. Are they willing to report it? Will they raise bad news? Do they have strong perceptions of their leader’s commitment to integrity? And we call those ethics program outcomes. And what we found was that when an organization has a high-quality ethics and compliance program, those outcomes are 10 times better than in an organization with a minimum standard program or no program at all. And across the board metric by metric. What we found in this study is that the higher the quality of the program, the better the outcomes.”

Corporations have historically organized their ethics and compliance programs around a priority to align with legal and regulatory expectations. Yet increasingly, organizations are going above and beyond historic regulatory risk mitigation. With more and more organizations committing to higher quality programs, it begs the question: does it make a difference when a company dedicates more resources and heightens the priority of their E&C efforts?

Tomorrow, I will consider the surveys released in Q3 and Q4; Building Companies Where Values and Ethical Conduct Matter; and Interpersonal Misconduct in the Workplace: What It Is, Where It Occurs and What You Should Do About It.

For more information on ECI, check out their website by clicking here. To obtain a copy of all four of the 2018 GBES surveys, click here.

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, 2019

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