Sascha Matuszak (Sascha.firstname.lastname@example.org ) is a reporter at SCCE & HCCA in Minneapolis, Minnesota, USA.
Compliance professionals are generally referred to as compliance and ethics professionals, which implies that ethical considerations have as much to do with a company’s level of compliance as does attention to the law. Several recent surveys point to trends that seem to support this idea, including one in particular, "KPMG's 2019 Chief Compliance Officer Survey: Insights for the future of ethics & compliance,” (http://bit.ly/2YsHy69) in which 66% of respondents identified ethics as “one of the key regulatory and compliance obligations around which they plan to refine their efforts in 2019.”
According to the results of the survey, high-profile ethics breaches, which resulted in a record number of top-level CEOs being dumped by their companies, have boards of directors focusing on mitigating the risk of ethical breaches. Results indicate that organizations are focusing primarily on investigations and monitoring, ethics, and training; investigations to identify trends and root causes; ethics to clarify what is the “right thing to do” and to reinforce accountability for failure to do so; and training to reinforce the firm’s values and controls through meaningful example.
The KPMG survey comes at a time when ethics and the moral reputation of an organization are having a dramatic influence on business performance. Two studies—a look at the food industry (http://bit.ly/2XFYgC1) by L.E.K Consulting LLC and a Crestline study (http://bit.ly/2KUxCzo) on consumer behavior—show that consumers want to “shop their values,” and prefer to support products and brands that match their own ethical stance on a variety of issues.
In the Crestline study, almost 70% of respondents stated that they either agree or strongly agree with the statement, “I care whether the companies I buy from share my moral and ethical values.” Less than 10% disagreed or strongly disagreed. These findings are in keeping with trends that show boards of directors linking CEO pay with sustainability issues; the power of employees to steer organizations according to moral and political views, rather than pure business decisions; and the proliferation of tools that help investors find “ethical companies” to invest in.
The logic behind the trends is summarized by a Wall Street Journal article (https://on.wsj.com/2xsyAtH) on CEO pay and sustainable business:
“[i]f everyone from the chief executive to the plant manager factors things like carbon emissions into capital-expenditure decisions, rank-and-file employees also will be more likely to make choices that help the company reach its goals more quickly …”
As long as those goals are related to environmental, social, and governance (ESG) concerns or sustainable business, then the model works. Organizations invest time and money into sustainable business practices so that consumers feel better about purchasing a particular good. The trends sound positive, but it seems as if organizations and consumers are conflating ethics with sustainability and standard ESG concerns. Although ethical behavior can result in more sustainable business practices, it is still difficult to distinguish when an organization is considering ethics, or merely considering how to follow the letter of the law.
“People talk about ethics as an obligation,” said Joe Murphy, CCEP, Senior Advisor with Compliance Strategists. “But that’s not ethics, that’s the law. Ethics is not an obligation.”
Murphy considers much of the ESG and sustainability efforts to be “photo opportunities,” a means through which organizations can garner positive media attention, but not necessarily commit to a robust compliance program. Ethics, he contends, requires a committed effort and certain strategic concessions on behalf of the organization. He lists three areas that absolutely must be addressed by any organization serious about compliance and ethics:
Empowering an independent compliance officer
Focusing on high-risk people and an organization’s incentive structure
Strategic government involvement and oversight
“The battle against corporate crime is an enormous battle that requires enormous attention,” Murphy said. “And to control power, you need power. You need the government to take compliance seriously. You also need compliance and ethics officers with the power to actually effect change in their organizations. And perhaps most importantly, you have to focus on the high-risk people—usually the top level executives—and focus on incentives. If you give me power over who gets rewarded and why, I can change your culture very quickly.”
Another article in The Wall Street Journal, “How Corporate Boards Can Get Serious About Sustainability Issues,” (https://on.wsj.com/2J7u6zA) actually touches on some of these issues. The article could be speaking about ethics when it states that, “a vast gap remains between the few directors who know how to integrate [sustainability] into the heart of their organization’s activities and the many who are taking a more check-a-box approach.”
The WSJ article cites research and interviews in which the C-suite and boards of directors refer to sustainability in dismissive terms, even snarkily referring to their skill in filling out the Dow Jones Sustainability Index’s questionnaire as the most important criteria for being seen as sustainable. The article goes on to list five ways in which companies can achieve sustainability, and the methods sound very much like what a dedicated ethics professional would prescribe for a company that wants to “become ethical.”
If we exchange ethics for sustainability, then the five things to keep in mind are:
Get the right people – people with an ethical mindset.
Define how ethics fits with corporate purpose – read the United nations’ Sustainable Development Goals (http://bit.ly/329Jumz) and see where your company fits in. How will ethics mesh with value creation?
Have the right data – hundreds of firms supply ESG and ethics data, including rankings, but can they quantify culture? Knowing what data works and what doesn’t is a challenge.
Make sure the board has the right structure and authority – a compliance and ethics officer on the board perhaps?
Recognize the complexity of ethics – creating an ethical organization requires a cultural makeover, and maintenance of that makeover. Hence the focus on monitoring and testing that respondents to the KPMG survey displayed.
It is absolutely true that organizations are focusing on ethics and ESG concerns, and the trend is a promising one. “It’s not impossible to create an ethical culture within an organization,” Murphy said. “If the government can make the system more amenable to compliance programs and organizations can realize the need to focus on creating the proper incentives and empowering their compliance and ethics professionals, then you can make a change.”
“It’s no more impossible than meeting any other objective.”