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Author Alexandra Levit says rethinking incentive systems and the role of compliance teams are both critical for companies that are serious about tackling corruption
The 21st century has been besieged by corporate ethics disasters. You might remember the 2001 Enron Corporation scandal, in which a US oil company collapsed under the weight of high-risk accounting practices. In 2004, I found myself in a related situation when the company where I was working, Fortune 500 enterprise software firm Computer Associates, was investigated by the US Security and Exchange Commission for sales practice violations.
Just a few years later, a global financial crisis resulted from banks playing fast and loose with mortgage approvals. After a run like this, many people have trouble trusting corporate entities – and rightfully so. This means, however, that adopting and enforcing ethical business practices has recently become, and will probably remain, a major leadership priority.
According to the Organisation for Economic Co-operation and Development (OECD), corporate efforts so far to tackle ethical issues, including a specific focus on anti-corruption and fraud prevention, have not gone far enough, and companies need to do more to create holistic cultures of integrity. But this is easier said than done. It’s one thing to draw up and promote ethical practices when there’s nothing at stake, but how do leaders enforce them when it’s literally or figuratively costly to do so?
Which groups are responsible for safeguarding an organisation’s ethics? The C-suite? Human resources? Legal and compliance? And if they are all involved, how must they collaborate for the benefit of all? These are all open questions. The second decade of the 21st century has revealed vulnerabilities.
For instance, global non-profit thinktank BSR conducted an ethics study in which it concluded that pressuring individuals to meet high sales targets, and rewarding this without regard to behaviour or ethics, is a significant causal factor in corruption.
By making conscious efforts to curb the unintended consequences of incentive systems, companies can improve their ethical cultures.
The compliance team has come to be an internalised law-enforcement function that responds to external pressure from government regulators
Another issue pertains to the compliance function. “The compliance team has come to be an internalised law-enforcement function that responds to external pressure from government regulators and the public, and tends to be staffed by lawyers and former regulators,” wrote BSR.
Because they want to stay out of trouble with the actual law and wish to keep government regulators out of the organisation, companies have implemented law-like stipulations in-house. Unfortunately, this results in what is known as criminalised compliance, or treating compliance as a problem to be solve through the aggressive enforcement and adjudication familiar to criminal law.
But this is an ineffective approach because it encourages employees to close ranks. When they can rationalise their actions by saying they are protecting senior management, they are more likely to engage in future unethical or illegal behavior.
Given these considerations, how should companies adjust their approaches to ethics and compliance to be more effective in a mid-21st-century world? Some recommendations are as follows:
• Create clear ethical guidelines that align closely to your mission, values and purpose, and then make sure you adhere to them, even when inconvenient.
• Aim to create a climate in which your employees feel engaged and safe, and that their perspectives and beliefs are valued.
• Ethical constructs vary by person and culture. Standardise your efforts by engaging frameworks like IFC performance standards and the UN Global Compact.
• Assume, in today’s transparent culture, everything you say and do may eventually come to light in a public forum. There’s no such thing as a confidential e-mail.
• Review the skillset of your compliance team and consider rethinking its responsibilities. Encourage ongoing dialogue between compliance, HR and other functions.
• Reconsider the criminal compliance approach. Henry Engler of Thomson Reuters Regulatory Intelligence said in a recent article that this approach is espoused by the UK’s Financial Conduct Authority. “Rather than developing compliance programmes that mimic the criminal law, companies should focus their programmes on the employees whose behaviours they intend to change. Behavioural science models begin with studying the individual and working back to a prototype that suits the user’s needs and behaviour. Such an approach seeks to tap into peoples’ basic desire to see themselves as ethical.”
Alexandra Levit is author of Humanity Works: Merging Technologies and People for the Workforce of the Future (Kogan Page, October 2018). A partner at People Results, she helps Fortune 500 and government organizations and their leaders prepare for the future of work through proprietary research, consulting, and programme development.