Fostering Culture & Performance in an Uncertain World
By Emily Miner, Senior Advisor, LRN Ethics & Compliance Advisory
The ethics and compliance industry was once built to respond to legal and ethical lapses without deep consideration of the larger, systemic causes.
Post the massive Enron scandal, a focus on rules and laws was reflected in the name of a newly formed corporate function: The Compliance Office. Over time, the remit of the Compliance Office evolved along with the expectations of regulators, shareholders, consumers, and others to encompass ethical lapses as well as legal one. We saw the shift in naming conventions with many evolving the function to become the Ethics and Compliance Office.
Today, another shift is occurring. The business community and its stakeholders care not only about getting rid of the bad apples but examining the trees from which they flourished.
The past several decades of headline-grabbing corporate scandals have shown that compliance without understanding of, and commitment to, ethics can lead people to break or misconstrue laws and rules, cut corners, and pursue outcomes without consideration for how those outcomes are achieved. Further, many companies have come to understand that compliance programs are only as good as the cultures and people that support and reinforce them.
Operationalizing these understandings is all the more important in today’s business environment where stakeholders’ expectations of a company’s values and how they live up to them have never been higher.
What the business community has come to understand is that rules and regulations have their limits. They tend to be backward looking, based on past missteps, and rely on prohibitions to deter misconduct. Shared values, not just shared interests, are what truly connect and foster values-based cultures and institutions. They also guide employees to work ethically because they are inspired to do so, and without high degrees of oversight and direct supervision.
Each year, LRN examines how companies can effectively inspire people to do the right thing, behave in ways aligned with corporate values, and live up to the spirit and letter of the law in its Ethics & Compliance Program Effectiveness Report. The findings consistently confirm that corporate values guide the best workplace decisions – much more so than rules or laws – because they are based on what one should do, not what one can do. Effectively determining what is right in the face of increasing uncertainty quickly becoming a critical workplace skill for the new world of work.
A first look at the data was released earlier this year, in a review assessing the impact of COVID-19 on program effectiveness. The data proves that operating with a should-do versus a can-do mindset is even more important during times of considerable uncertainty. In fact, the study found that corporate values and commitment to ethics sustained companies during the uncertainty of the pandemic. So much so that 79% of those surveyed said their organization’s ethical culture is stronger as a result of their COVID-19 experience.
A second look at the data will be available in a new report, Leading the Way: How Boards of Directors Can Engage and Lead in Ethics and Compliance, available in late July. This review examines the role and impact of corporate directors on ethical culture, business outcomes, and ethics and compliance programs.
Though the board of directors may not be in the forefront of most employees’ daily experiences, the makeup of the board itself, what they prioritize, the oversight they exercise, and the accountability they set for leadership cascades from the C-suite all the way through the grassroots of their companies, impacting business practices and workplace conduct in profound ways.
The new research suggests that those companies whose boards doubled down on ethics and compliance during 2020 may have built stronger ethical foundations, better positioning their organizations to meet future challenges consistent with society’s elevated expectations for business.
In fact, when boards effectively supported their ethics and compliance programs during the crisis, ethics and compliance considerations played an important role in the organization’s COVID-19 response: 2.6x more than in organizations where the board did not support the E&C program during the pandemic (88% agreeing, compared to 34%). Organizations with engaged boards were also 2.5x more likely to emphasize company values, rather than rules and procedures, to inspire employees to do the right thing in difficult circumstances (89% agreeing, compared to 36%).
A third and final report will be released shortly to explore best practices in the field of ethics and compliance and the differences between highly-effective and less-effective programs.
The findings reinforce the body of research LRN has collected over nearly 10 years on ethics and compliance program effectiveness: There has never been a more effective system to shape and direct behavior in an organization than culture. There has never been a more effective guide of employee behavior than shared values.
Given that leadership – including the board – has an outsized impact on corporate culture, and the outcomes of those cultures, those that view the health, sustainability, and ethical foundations of their culture as strategic priority will be the best positioned in this new world of work.
Emily Miner is a Senior Advisor in LRN’s Ethics & Compliance Advisory practice. She counsels executive leadership teams on how to actively shape and manage their ethical culture through deep quantitative and qualitative understanding and engagement.