The Principles & Practices of High-Quality Ethics & Compliance Programs

The Blue Ribbon Panel, convened by the Ethics & Compliance Initiative, recently released a draft of their latest report and invited ethics and compliance experts to share their comments and feedback. We’re proud to share our response to this request, which encompasses many of our philosophies and key ideas regarding ethics, compliance, and values-based behavior.


LRN applauds the work of the Ethics & Compliance Initiative and its blue ribbon panel in producing the “Principles & Practices of High-Quality Ethics & Compliance Programs” report. By highlighting best practices and engaging in a public discussion, the ECI contributes to the improvement and growth of ethics and compliance programs. Underlying LRN’s commitment to principled performance is the belief that best practices in the ethics and compliance field drive high performance in all aspects of an entity’s operations.

We also believe that such enduring success is achieved through inspired, ethical leadership — regardless of tenure, job function or position in an organizational chart. Over time, such ethical leadership shapes a culture that governs itself according to shared corporate values. In this spirit, we offer some comments and recommendations on the draft report intended to advance the public dialogue on ethics and compliance programs.

LRN’s principal recommendation is to focus on and emphasize the role of shared values as the wellspring and catalyst for building and sustaining an ethical culture.

Shared Values are the Basis and Catalyst for Ethical Culture

LRN’s research indicates that high-performance companies are increasingly shifting away from a rules-based, checklist approach towards using values-based programs that empower employees with the tools to exercise good judgment and with trust that they will do so.

Thus, the report’s discussion on moving beyond checklists and the bare requirements of the Sentencing Guidelines is insightful and constructive. As a leading Chief Ethics and Compliance Officer of a major pharma company recently noted, focusing on rules incentivizes employees to find exceptions; focusing on values inspires them to go beyond the letter of the law and do the right thing. But we also believe that discussing “ethical culture” without focusing on underlying values and shared goals runs the risk of reducing culture to another static objective for the E & C team and the leadership to check off.

Collaborative, values-based organizations, characterized by aligned mission and responsibility are able to build and sustain an ethical culture — moreover, the business outcomes associated with those cultures outperform the competition.

In LRN’s Global HOW Report, based on 2 million observations of behavior across 30,000 companies in 18 countries, one particular kind of culture — one we call ‘self-governing’ — beat the competition across every one of fourteen business outcomes that every company seeks, as the below charts illustrate:

Recommendations:

  1. LRN believes that Principle One should be restated as “Shared Values” are central to business strategy. Restating Principle One to capture all values emphasizes that sustainability, excellence, and an organization’s mission/purpose, as well as ethics, should drive business. It makes clear that integrating ethics and compliance is a secondary aspect to the broader discussion of values and mission in the workplace.
  2. Similarly, the references in and discussion of Principle Three, which focuses on building an “ethical” culture, would be more effective if framed as part of a holistic, broader approach to a “values-based and purpose-driven” culture as Dell’s example suggests, rather than a series of practices to adopt.

Greater Clarity that Values and Culture Are Owned by Everyone

On p. 11, the report lists the two main functions of an E & C program as assessing and abating risk and the other as “establishing and perpetuating” an organizational culture that prizes ethical decision making, inter alia.

The task of establishing an ethical culture and sustaining it should not be “assigned” to the E & C team as a goal or task. Consistent with other parts of the ECI report, this goal must be owned by the Board, leadership, management and employees as a group. As noted above, culture needs to be rooted in values and purpose, not a department.

Similarly, the discussion of Principle Three focuses too narrowly on leadership and management in our view. The goal of an effective ethical culture should be for everyone to internalize common values and take ownership. Making ethical decision making and compliance tools accessible to everyone is a best practice we actively promote with our partners.

Recommendations

  1. Change reference to E & C mission to “catalyzing” an organizational culture that prizes ethical decision making, etc.
  2. Reformulate discussion of Principle Three, away from overemphasis of management’s role, towards all employees or members of an organization taking ownership of ethics.

Fostering a “Speak Up” Culture Requires Embracing Values

The Report appropriately emphasizes the need for a “speak up” culture as Principle Four. This discussion, as with other example discussed above, would be more effective if tied to common values and outcomes for the business as a whole. Trust is the necessary ingredient for any meaningful “speak up” culture. Without it, employees’ willingness to challenge decisions, raise issues or voice concerns is limited no matter what policies are in place. The findings of LRN’s Global HOW Report provide empirical support for this conclusion.

As illustrated below, three of the most important outcomes we all focus on in the ethics and compliance community — speaking out, the degree of misconduct observed, the extent of reporting, and the extent of retaliation — are all a function of trust, values and mission.

The report focuses principally on specific practices and measures to take regarding speaking up, rather than the values foundational to such measures.

Below are some examples of our work in this area:

  1. LRN designed a comprehensive Speak Up Program for an aerospace & defense contractor. As a result of a newly re-designed Code of Conduct, the client sought guidance and expertise in amplifying Speaking Up as a core theme. They turned to LRN to collaborate around an actionable plan to build increased levels of trust starting with senior leadership, through middle management and employees. LRN partnered with them to create a survey and workshop activity for their facilities, reviewed the results of the survey and the active feedback from participants and determined key themes around attributes of a Speak Up culture. The Speak Up attributes were built into a broader roadmap and education strategy. One of the core areas of focus was around leaders and the desire for them to be more visible, accessible, and the influence they have on shaping everyday ethical decision-making. LRN integrated this objective into the education strategy and delivered a tailored ethical leadership workshop for the top 20 Sr. Leaders. LRN developed an actionable strategy with a series of education modules and facilitated learning programs. Participants learned more about collectively ‘walking the talk’, shared positive experiences of Speaking Up, and presented hypothetical scenarios.
  2. LRN partnered with a large global insurance firm, with a deep history of 200+ years around increasing greater employee engagement on the principles of their Code of Conduct. The organization was facing learner fatigue and sought to re-frame their compliance training strategy with messaging that reflected their shift to a more values-based culture. In various planning and scoping discussions, the need to implement a Tone in the Middle emerged and LRN designed a roadmap to build a series of cascaded workshops using our Experiential Learning methodology. The workshops were built as scenario driven toolkits that could be easily delivered by managers. Discussions centered around everyday decision making reflected in ethical dilemmas designed by LRN. The scenarios tied the core principles of value-based decision making through the lens of the company Code back to the business objectives and bottom line. This resonated well with managers and gave them a vehicle to reconnect with their teams in a constructive and impactful manner. The conversation-style learning shifted the fatigue from online training to a more social, group learning format. This has driven greater engagement, active participation and increased levels of knowledge retention. Placing managers at the forefront of the discussions promoted more visible Tone in the Middle, resulting in culture champions for the business.

Emphasize Increasing the Type of Information Collected and Reported to Leadership and the Board

The Report at p. 19 discusses the need for the Board to be well-informed about the impact of the E & C program and its implementation. The key indicator in this area has traditionally been hotlines.

LRN recommends that ECI considers greater emphasis on moving beyond the hotline towards capturing broader and more integrated data on the entity’s health and reporting that to the Board and management, consistent with LRN’s focus on company-wide values as the driver for ethics and compliance.

Companies that capture and consolidate data from Human Resources, Quality Control, Safety, IT, Audit and concerns raised to management find relevant patterns of behavior and potential vulnerabilities not previously reflected in their hotline data. General Electric’s emphasis on “open reporting” as the cornerstone of its Ethics & Compliance program is a good example of this principle in action. Indeed, reports on the Volkswagen investigation suggests that employees raised concerns about many of the unethical practices now under scrutiny through various channels outside the hotline without any discernible impact.

Recommendation

  1. Add separate best practice section discussing moving “beyond hotlines” towards broad, integrated data collection, including open reporting, to be available to management and the board.

LRN has over 20 years of experience in the ethics and compliance field, working to develop and improve the programs of many Fortune 500 companies, as well as producing original research based on the progress we’ve made. It is our hope that the work we’ve done over the years and conversations we’ve had on this report, both of which are reflected in this post, will help the ECI and Blue Ribbon Panel produce the most comprehensive and helpful E&C resource possible.