Let’s start with the good news: 31% of compliance professionals believe that their organization is ethical all the time.
At first glance, that might sound promising, or at least not problematic. However, when we flip the numbers around, we see that 69% of organizations (more than two-thirds) aren’t always ethical in the eyes of their in-house compliance professionals. This problem is especially evident in corporations with compliance programs that lack leadership buy-in. Of companies that have senior management who view their compliance programs as a “necessary evil,” a full 30% said their organizations behaved ethically only some of the time or rarely.
Leaders, especially those with less developed programs, must start embracing the idea that there are strong business reasons for having a robust E&C program.
These were some of the key findings in NAVEX Global’s inaugural Definitive Corporate Compliance Benchmark Report that will be released in an upcoming Master Class on Performance Drivers. The surveyed group, with representatives from a wide range of industries and more than 1,000 organizations, was asked about their approach to building, managing and optimizing an effective E&C program.
The findings weren’t all doom and gloom – individuals from advanced maturity* compliance programs and programs viewed as strategic investments by leadership were significantly more likely to say their organizations were always ethical at 47 and 44% respectively. This tells us that organizations of all types have room for improvement. But more significantly it tells us that leaders, especially those with less developed programs, must start embracing the idea (and the research that backs it up) that there are strong business reasons for having a robust ethics and compliance program.
It’s in the Numbers
Last fall, research from George Washington University based on NAVEX Global data examined the statistical relationship between internal reporting system usage (whistleblower hotlines) and business performance. The research, conducted by Professor Kyle Welch, showed that increased hotline usage leads to:
- Greater profitability and workforce productivity as measured by Return on Assets (ROA)
- Fewer material lawsuits brought against the company overall, and lower settlement costs if a lawsuit does occur
- Fewer external whistleblower reports to regulatory agencies and other external authorities
This is an important lesson for compliance professionals, and especially members of the C-suite and the Board. The business rationale for strong compliance programs had been an article of faith in the profession for years. But now that the proof is out there, organizational leaders should consider it and use it in their decision making – and in establishing the correct tone at the top.
Less Developed Programs (and Leaders) Fare Worse
The new benchmark research also found that less developed programs are faring quite poorly by some key measures. Just 15% of respondents from reactive programs think their organizations are ethical all the time (compared with about a third for all programs, as noted above). Roughly 30% said ethical behavior was infrequent or rare.
Another finding in the report provides clues about why this could be happening – and it comes down to how leadership at different types of organizations views the ethics and compliance program.
Strikingly, 44% of respondents from reactive compliance programs said their senior management thinks of ethics and compliance as merely “a necessary evil that is required by regulators,” and another 43% view the programs as “an insurance policy against ethics and compliance failures.”
Only 13% viewed their reactive program as “part of a comprehensive risk management strategy that proves a return on investment.” Eighty-three percent of respondents from advanced programs said their managers’ thinking was in this category.
What Can Compliance Officers Do?
Taken together, these findings show just how important it is for leadership to get on board with compliance efforts – and for compliance officers to make that happen. The good news is that compliance officers are now more equipped to argue the business case for compliance than ever before, thanks to a growing body of research. When leadership sees the value of the program as a strategic necessity with a clear ROI, better decisions are made throughout the organization.
Compliance officers are now more equipped to argue the business case for compliance than ever before, thanks to a growing body of research.
Put simply, leaders must embrace a comprehensive strategy. The ones who see compliance programs as an insurance policy or necessary evil are sending a terrible message to the workforce – in their actions if not necessarily in their words – resulting in the underwhelming findings we see when it comes to the overall assessment of ethical behavior.
In the end, compliance problems aren’t really about compliance. They’re about leadership.