Managers Key to Fostering Ethical, Values-Based Cultures: The E&C Pulse - December 18, 2019

December 18, 2019 Ben DiPietro

Dec. 18, 2019

Managers Key to Fostering Ethical, Values-Based Cultures


Despite ongoing investment in, and significant attention paid to, ethics and compliance programs, scandals continue to proliferate worldwide, and occur despite laws and regulations intended to prevent misconduct. 


Scandals often have some basic commonalities, LRN’s Susan Divers and Jonathan Drimmer, partner at law firm Paul Hastings, told participants last week during a Society of Corporate Compliance and Ethics webinar.


According to Divers, scandals usually include:

  • Employees who reported the wrongdoing; it wasn’t a secret, people knew;
  • The organization had leaders who failed to act on reports;
  • There was retaliation against employees who raised concerns;
  • Companies were deceitful in dealings with regulators; and
  • The company suffered substantial harm.

These scandals illustrate the limitations of rules and the importance of ethical culture. Organizations with cultures of transparency, fairness, and accountability are more likely to identify and take action against wrongdoing than those where values are not emphasized, and employees don’t feel engaged or passionate about the company’s mission.


Forward-thinking organizations and their leaders recognize values, not rules, ultimately drive culture and compel employees to make the right decisions in the face of ethical conflicts, said Drimmer. 


This was made clear in the revised Department of Justice guidelines, which now have a strong focus on whether an ethics and compliance program is being implemented effectively, and whether it works in practice, and does more than exist on paper, he said.


The DOJ also placed an increased interest in values. The original guidance that was issued in 2017 made no mention of the words “culture of compliance,” said Drimmer. The revised guidelines mention the phrase six times, and includes a sub-category of questions focusing on assessing a culture of compliance, perceptions of management, taking action.


”It is very much on the minds of regulators,” he said.


Divers spotlighted LRN research that shows E&C programs focused on values as well as rules are much more effective than those that simply are layers of rules and the critical role of moral leadership in creating and maintaining an ethical culture 


Leaders who don’t demonstrate moral leadership are 10 times more likely to treat people unfairly, eight times more likely to hoard information, and five times more likely to prioritize short-term results over long-term mission, according to LRN’s 2019 Report on Moral Leadership.


“Coercion and motivation can shift behavior. Inspiration elevates behavior,” said Divers.


It’s important to focus on values, she said, because all the companies named in the major scandals of the last few years all had formal elements of a compliance program. 


“If your underlying culture is working against your program and the measures that you are taking to promote good behavior, your ethics and compliance program will lack effectiveness,” she said.


One area for organizations to focus their time and attention is on managers, and making sure they are practicing what the company is preaching, said Drimmer.


If employees see managers model certain behaviors and follow the rules, there is a good chance they will do the same. The converse also is true.


“If a manager pressures employees to engage in behaviors compromise ethical principles, that legitimizes behaviors that are contrary to the principles of compliance,” he said. “Ethics and compliance messages are effective only when incorporated into the actions of management at the company, at all of its levels.”


It’s vital for companies to spell out for managers what behaviors are expected in a transparent, unmistakable way, and to build workplace accountability into E&C policies, said Drimmer. That may include creating a separate managers’ section in the code of conduct to talk about the importance of modeling ethical behavior.


When he was ethics and compliance chief at Barrick Gold, Drimmer said they would incentivize  managers demonstrate E&C leadership. In one country, Barrick created individual compliance plans for managers that included having them participate in roundtable discussions that emphasized ethics and integrity, take part in trainings, and engage early on with new employees.


“The expectation was understood, and we put them in a position to demonstrate leadership,” he said.


The company used a scorecard of relevant factors to rate managers on how well they were meeting E&C plan commitments. 


Integrating and incentivizing compliance, and putting E&C into the employment processes--making it part of promotion criteria, and how compensation and bonuses are calculated--are concrete and tangible steps to drive values, set standards, and them make them accountable to those standards, said Drimmer. 


For further information, download a white paper written by Divers and Drimmer, "Maximizing the Impact of Your Ethics and Compliance Program: What Works Best?"


(Note: We won't be publishing a newsletter next week. We will be back on Jan. 2 with a special Thursday morning edition.)


                                                                                                            BEN DIPIETRO




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