The Evaluation of Corporate Compliance Programs, 2019 Guidance, makes clear that operationalization of compliance into an organization should be done at multiple levels. The 2019 Guidance also called out culture as a key indicia for an ethical culture. Creating an ethical culture is an important step for any company to burn compliance into the DNA of a business. It must be done at every level of an organization on a continuous basis. Human Resources (HR) can play a key role in both the creation and maintenance of an ethical culture.
In Harvard Business Review (HBR) article by Christopher McLaverty and Annie McKee, entitled “What You Can Do to Improve Ethics at Your Company”, the authors surveyed C-suite executives and noted, “More often the dilemmas were the result of competing interests, misaligned incentives, clashing cultures.” Based on this study and their prior work, the authors noted three major obstacles to ethical behavior
Initially was the issue of corporate change. The authors stated, “Companies can warp their own ethical climate by pushing too much change from the top, too quickly and too frequently. Leaders in the study reported having to implement staff reduction targets, dispose of big businesses in major markets, and lead mergers and acquisitions. Some of these activities included inherent conflicts of interest; others simply caused leaders to have to act counter to their values. Many leaders felt poorly prepared for the dilemmas they faced and felt compelled to take decisions they later regretted.”
The second was the age-old dilemma of compensation where incentives tended to drive certain behaviors or, as the authors stated, “People do what they are rewarded to do, and most leaders are rewarded for hitting targets.” Of course the most recent example is Wells Fargo where employee compensation was based solely on the number of accounts they opened. Yet such incentive-based behavior was not limited to front line employees as the authors stated, “The lure of incentives are a problem in boardrooms too: Bonus payments and executive share schemes are often based on short-term business metrics, which can be counter to long-term success.”
Finally, was an area which may require a Chief Compliance Officer (CCO) or compliance practitioner to think through several different calculi; cross cultural differences. Obviously, some countries have gift giving cultures but this is more than simply the value of a gift to give at Christmas, it involves cultures where gift giving may be a part of the overall business relationship. The authors cited examples such as “closing a sales office in Japan, breaking a verbal promise made during after-work drinks in China, or ignoring “sleeping” business partners in a Saudi Arabian deal, all of which have cultural and ethical components.”
An interesting insight was teaching employees how to understand what matters in an organization. This is not simply the written Codes but how things really work. The authors posited three questions: (1) How are employees paid? A compensation plan is a critical benchmark. If it is solely based on ‘eat what you kill’, focusing on the short term, it may presage problems down the road. (2) Who gets promoted and why? This is not simply whether the high producer gets promoted but how about those who speak up and raise ethical issues. Are they subtly (or not so subtly) discriminated against or held back from promotion? (3) How do employees feel about their organization? Although it seems straight-forward, if your employees are disengaged or worse yet, ashamed about your company, you might be an ethical time bomb waiting to happen.
The authors then turned to initiatives that the interviewees had successfully used in their own organizations to improve the ethical climate. While noting that there is some importance in the corporate governance documents, such as a Code of Conduct and policies and procedures, the authors averred, “Companies become ethical one person at a time, one decision at a time.” This means employees need to understand their organizations underlying culture. They stated, “Self-awareness enables you to build and strengthen that inner compass. Organizational awareness enables you to identify the forces in your company’s culture and processes that could drive you and others to do the wrong thing. You also need emotional self-control: it takes courage to step away from the crowd and do the right thing.”
To have such courage, the authors noted many employees who did speak up had a personal network which operates as “an informal sounding board and can highlight options and choices that the leader may not have considered. When making ethical decisions, it’s important to recognize that your way isn’t the only way, and that even mandated choices will have consequences that you must deal with.” This is yet another reason for the breaking down of silos in a corporate organization because “The challenge is that most leaders have networks full of people who think and act like them and many fail to seek out diverse opinions, especially in highly charged situations. Instead, they hunker down with people who have similar beliefs and values. This can lead to particularly dire consequences in cross-cultural environments.”
Finally, and perhaps most intuitively, is speaking up. Here business leaders must encourage not only a speak up culture but also one of no retaliation. However, it is more than this as Vanessa Rossi, former FCPA Due Diligence Counsel at BakerHughes Inc., and now Independent Compliance Consultant, has said it is more tones at the tops as for many employee’s senior leadership resides in the form of their direct manager. The authors phrase it as “If you find you need to speak up, there will be a number of choices to be made. Do you talk to the boss? Consult with peers? Work with advisory functions such as legal, compliance or human resources? You can draw on your personal network for support and guidance on the right way forward within the context of your unique situation.”
Ethics and compliance blend together in the corporate world. It is not just the responsibility of CCOs and compliance practitioners but of HR to support those employees who want to do the right thing. While written protocols are significant in both detection and prevention, one should never lose sight of a corporate culture as a way to positively impact your workforce and company going forward.
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© Thomas R. Fox, 2020