E&C Pulse - November 13th

November 13, 2018 Ben DiPietro
 
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Focus on Short-Term Results Hinders Long Game of Ethics

In organizations where compliance is viewed as a burden and not an asset, the economic advantages a strong ethics and compliance program can bring are not finding resonance in the C-suite or boardroom.

As far back as 2003, when the Institute of Business Ethics published a report showing companies that take ethics and compliance seriously outperform those that didn’t, there’s been an economic argument for businesses working to develop values-driven cultures of integrity. Other studies since then have reaffirmed this premise.

Yet, only the most progressive companies--and those that found themselves in trouble and learned firsthand that acting improperly carries great costs--have adopted strong cultures driven by openness, honesty and accountability.

Why is this? If businesses are in business to make money, why wouldn’t they all adopt the most robust ethics and compliance programs they could, why wouldn’t they all strive for strong cultures, if that led to greater returns?

One reason is the disconnect between the desire for long-term sustainable success and the mandate to produce strong results each quarter, said Louis Sapirman, a compliance and legal executive and former chief compliance officer for Dun & Bradstreet Corp.

While research shows strong ethics and compliance leads to better financial results, Sapirman said research around the impact of compliance and ethics hasn’t yet reached the stage where it creates positive short-term results. “The fact long-term results can be impacted by effective ethics and compliance may not ultimately be the driver of the decisions if the decisions mostly are being made on a short-term basis,” he said.

Organizations that view it solely as an ethics and compliance issue may be looking at the issue too narrowly, said Sapirman. The focus on short-term results often leads to decisions not made in the best long-term interests of the company. Some companies have moved toward more enlightened ways of conducting business, and as that approach takes greater hold it offers compliance an opportunity.  

“Compliance, by the nature of what we do and how we do it, is very much forced on the long-term operational effectiveness of an enterprise,” said Sapirman. “So if there is a move toward some type of long-term performance indicators, those would probably be the case where compliance should be jumping on board.”

Ethics is a long-term game, and it requires courage to play that game if you are a company and the market is breathing down your neck and you are feeling pressure from investors, said Philippa Foster Back, director of the U.K.-based Institute of Business Ethics.

“According to our research at the IBE, boards are discussing corporate culture, but it’s just that they may not be asking the right questions,” she said. “They need to get out and about in their companies, so that they can see for themselves what lies behind the numbers and what their corporate culture actually looks and feels like.”

But boards are rightly worried about being drowned in information, so she said it’s a good idea to select critical indicators based on the expectations of key stakeholders to create a dashboard of information relevant to their company and their corporate culture.

There also is a tendency to focus on the numbers--how many employees have completed the mandatory e-learning, how many calls have been made to the hotline--so it’s important to look beyond the numbers and paint a picture of what that looks like in practice, said Back.

IBE this past summer asked more than 6,100 employees in eight European countries about how they have experienced their organization’s ethics program, whether they receive training, if their organization has a code of ethics. It also asked them about so-called “soft” indicators--such as tone at the top; whether leaders and managers set a good example of ethical behavior; whether their organization acts responsibly in all business dealings; and whether misconduct is addressed.

In organizations with a supportive environment, 91% of respondents said honesty is practiced more frequently than those not in such an environment (53%). They are less likely to be aware of misconduct (21% versus 60%); are more willing to speak up if they become aware of misconduct (70% vs. 47%); and are less likely to feel pressures to compromise their organization’s ethical standards (87% have not felt pressured vs. 59%).

“These show the power of these ‘soft’ indicators,” said Back. “These need to be communicated to senior leaders.”

Who else within the organization can ethics and compliance turn to for assistance, and to form alliances to better advocate for the long-term case?

Back said one blind spot she sees in many companies is the decision not to consider information from stakeholders such as customers and suppliers, as these can be useful barometers for potential risky indicators.

“Utilizing the voices of that business-critical group can help boards focus on the importance of ethics in meeting their current strategic goals, as well as their long-term ones,” she said.

Sapirman said much the same thing, as these insights from customers can carry great weight with the C-suite and board.

“There is no substitute for great anecdotes from customers and partners,” he said. “Getting a note from the chief procurement officer of one of your largest customers, saying ‘We appreciate you because of what you do in ethics and compliance,’ that has to be sort the cover of your argument to the senior leadership about the importance of what you do.”

 

Ben DiPietro
@BenDiPietro1
ben.dipietro@lrn.com

 
MIND NUMBERS
 
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A report from executive search firm BarkerGilmore found median total compensation for chief compliance officers with law degrees at public companies with revenue of $5 billion or more was $295,000; it was $225,000 for CCOs without a law degree.

 

 
WHAT'S NEWS
 

Companies in industries that extract resources, farm and make clothes are falling far short of United Nations benchmark principals for showing respect for human rights, for paying a living wage and for taking action against forced labor, according to a report from a U.K.-based organization.

Being nice is an underrated skill more business leaders should develop, Mark Cuban tells CNBC.

Trust can be a competitive advantage, according to a new report spotlighted in Inc.com.

What would you do if you found an extra $34,000 in your bank account? It's a question workers at a Belgian steelworks had to contend with after the company accidentally deposited more in their accounts than the bonus that was intended, BBC reports. 

Google and Facebook both rescinded policies that forced workers who filed sexual harassment claims to go through private arbitration, a move that will allow them to go to court now, The Washington Post reports. Will other companies follow?

An Air India pilot who also sits on the state-owned airline's board of directors was removed from the cockpit because he failed an alcohol test.

An independent auditor installed at Volkswagen as part of the company's emissions scandal settlement with the U.S. Justice Department says the automaker has much work to do before its compliance procedures can be certified, Automotive News reports.

 

 
FROM THE
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Join us tomorrow at 12:00 pm EST for a special webinar, "Operationalizing Your Compliance Program: Does One Size Fit All?", featuring "compliance evangelist" Tom Fox and LRN's Susan Divers.

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LRN's Marsha Ershaghi Hames and Sunil Bheda collaborated on a recent blog post on how building a compliance program with a mobile focus can increase workforce engagement.

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