Comment: LRN Corporation’s Emily Miner says the next six months will put corporate commitments to ethics and compliance to the test

Countless corporate scandals over the past few years are laying to rest the adage of a “bad apple” as opposed to a poisoned tree.

The Volkswagen emission testing scandal in Europe, the Serco tagging fraud scandal in the United Kingdom, the collapse of the Vale SA dam in Brazil, the failures of the Boeing 737 MAX in the United States, and many more have exposed a gap between companies’ stated ethical principles, codified in their ethics and compliance (E&C) programs, and the realities of their culture and conduct.

Now, as countries and businesses in Europe and elsewhere begin to slowly reopen and transform on the heels of the Covid-19 pandemic, corporate culture and conduct will be key bellwethers of our future. In so many ways, Covid-19 and the current reopening are a stress test for leaders. How are they holding up?

Just 46% of respondents say their leaders support effective sanctions on senior executives involved in misconduct

As the pandemic took hold, we at LRN Corporation published a report, Confronting the Root Causes of Misconduct, based on a global survey of 500 ethics, compliance, and legal professionals, that may shed some light. Our assessment of companies’ cultures of accountability is mixed:

  • While 75% of E&C professionals say their organisation requires employees’ ethical conduct to be evaluated when deciding promotions, only 56% require it be evaluated for bonus allocations.

  • Just 46% say their leaders support effective sanctions or penalties on senior executives and high performers who are involved in misconduct.

  • Only 44% seek employee feedback on ethical culture via surveys, focus groups, or diagnostics focused on trust, respect, and transparency.

  • And only 37% say their organisation takes ethics into account when setting sales targets or goals.

Encouragingly, though – particularly in this current environment – 83% say they believe the E&C function has the ability to raise issues directly with the C-suite or board.

A US senate hearing in June on the crash of Ethiopian Airlines Flight 302, in which 157 people died. Credit: Graeme Jennings/Pool via REUTERS

The report points to commonalities amongst companies with strong ethical cultures: affirmative values play a part in business decisions; employees can speak out without fear of retaliation; and governance is driven by values and transparency. These pillars of ethical culture determine whether the rules will be followed, ignored, or circumvented.

Companies won’t get a pass on ethically questionable practices because of the pandemic, and regulators know that the tone is set from the top. The UK Bribery Act 2010 Guidance states: “Those at the top of an organisation are in the best position to foster a culture of integrity” (Principle 2.1). This is a sentiment echoed by the Agence Française Anti-Corruption in 2017: “Implementation of … an anti-corruption compliance programme relies on top management’s commitment to establish a culture of integrity, transparency and compliance.” So how can leaders ensure these pillars are upheld?

As businesses reopen and ramp up, many will be focused on recouping as much revenue, share, or output as possible in an attempt to “make up” for the downturn. This is understandable, and yet is a major concern of the compliance professionals we’ve spoken to, as the pressure creates a heightened risk of misconduct.

We found that when leaders weigh ethics and compliance criteria, their employees are 3.8 times more likely to do the right thing, even when not in their own interest

Leaders must be aware of explicit and implicit signals sent by their words, actions, and strategies, at all times, but especially now. Reopening plans and business goals should be connected back to corporate values and ethical principles, both in how plans and goals are communicated and in the practice employees see on the ground.

Our survey suggests that such an approach will pay dividends. We found that when leaders weigh ethics and compliance criteria as they pursue business and revenue opportunities, their employees are 4.3 times more likely to question decisions that seem to conflict with organisational values and 3.8 times more likely to do the “right thing”, even if it’s not in their personal best interest.

Fostering an environment where people are free to speak up, not only to report misconduct or unethical behaviour, but to contribute their ideas, share feedback, and question why we do things, has never been more important. In fact, employees’ willingness to “speak out” is the top indicator of a culture of compliance, according to a behavioural ethics study that examined 45 potential predictors of misconduct.

And yet, our survey shows that only 67% of employees speak up during team meetings if their manager is there, and only 66% are comfortable skipping levels to raise ethical concerns. We collected our data at the end of 2019, before the rise of the pandemic, and it’s likely these numbers would be even lower today, with many fearing “rocking the boat” would jeopardise their employment. 

Demonstrators  in front of the  Vale SA bulding in Rio de Janeiro, Brazil April 30, 2019. . Credit: Sergio Moraes/Reuters

Leaders at all levels of the organisation must encourage people to speak up, explicitly and often, and make clear that retaliation will not be tolerated. In addition, leaders must demonstrate that they will “listen up” when people bring forward their concerns. We recommend establishing periodic forums to solicit employee feedback outside of traditional reporting channels, such as short anonymous surveys on employees’ experience returning to work. Leaders must also set the tone themselves, communicating openly and regularly the organisation’s plans, rationale, and the good as well as the bad. All communications, in whatever format, should be accompanied by resources for how employees can seek help or to whom they can go with questions.

The extent to which employees speak up depends on whether they perceive the organisation to be fair and accountable. How companies deal with top performers who engage in unethical practices in this moment will send a strong signal to employees about what the company really values. As such, it is critical that functions such as compliance and HR remain resourced and able to fulfil their mandates. Our survey found that organisations with active, high-impact E&C programs were 57% more likely than other firms to hold senior executives accountable for misconduct.

Companies must ensure their policies, standards, and reporting and investigation processes are clear and easy to find and understand. And, leaders must themselves be accountable for company decisions and their impact and discuss openly with the organisation any lessons learned.

We've seen incredible examples of companies and individuals coming together to respond to the crisis. The next six months will be a different type of test

Covid-19 changed the risk profile for almost every organisation, with increasing populations working remotely and disrupted or with new supply chains, to name just two examples. As a result, leaders must actively seek to understand how their risks have evolved in a dynamic and ongoing fashion, using real-time data from multiple sources, rather than relying on a snapshot in time. These insights must be quickly incorporated, and business practices adapted accordingly. UK regulators may not have foreseen a global pandemic when they wrote, “In addition to regular monitoring, an organisation might want to review its processes in response to other stimuli, for example governmental changes in countries in which they operate…” (UK Bribery Act 2010 Guidance, Principle 6.1), yet here we are.

These past six months have been a true test of leadership, and we’ve seen incredible examples of companies and individuals coming together, often at great personal sacrifice, to respond to the crisis. The next six months will be a different type of test, as companies’ employees and the world watch how organisations go about reopening, not just what they achieve.  

Emily Miner is senior advisor at LRN Corporation.

Main picture is of the class action suit filed by hundreds of thousands of diesel automobile owners against Volkswagen at the Higher Regional Court in Braunschweig, Germany, September 30, 2019. Michele Tantussi/Reuters


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