Yesterday I began a series on the LRN Corporation’s (LRN) 2016 Ethics and Compliance Program Effectiveness Report (Report) by outlining some of its general findings. Today, I want to focus on its detailed findings as it provides a guide which allows a Chief Compliance Officer (CCO) or compliance practitioner to both self-assess a corporate compliance program to determine its effectiveness and operationalization. With the Department of Justice’s (DOJ’s) recently released Evaluation of Corporate Compliance Programs (Evaluation) emphasis of operationalizing your compliance regime, the LRN report is timelier, more topical and more critical for the compliance professional to digest, understand and use. I am joined in this exploration by Susan Divers, Senior Advisor at LRN, who I interviewed for this series.
The Report detailed four key findings which are symptomatic of an operationalized compliance program. The overarching theme in is that ethics and compliance (E&C) “programs centered on values are more effective than ones that aren’t. A values-based approach toward shaping culture emphasizes and sets expectations, not just about what can and cannot be done according to rules, but rather what should and should not be done in alignment with core beliefs. In rules-based environments, that is, everyone’s job is to do the next thing right—to act correctly. In values based environments, in contrast, everyone’s job is to do the next right thing—to act morally.” It is this drive to burn compliance into the DNA of an organization that fully operationalizes compliance. Think of any recent scandal, Volkswagen (VW), Wells Fargo, Valeant or you name the scandal, where if an employee had simply done the right thing instead of the illegal action, how much better off a company would have been. The four findings were:
The most effective E&C programs are embedded in business operations. Diver pointed out it is critical a company should think “about ethics and compliance and values as part of your brand.” By doing so, each level in a company will understand its role going forward, from the Board of Directors, senior management, middle management and the employee base. Moreover, the company will train, develop and promote an ethics and compliance program through each of these levels.
Divers provided an insightful example, “I think if I were to use one word to characterize all of them together, it would be holistic. The first one of embedding your E&C programs in your business ops, one big piece of that is your brand. For example, Volkswagen used to have a fantastic brand. You thought of Volkswagen and you thought of basically a green car, and one that was well engineered. Now it’s a massive fraud. One headline I saw called it Hoaxwagen.”
The most successful E&C programs use a variety of channels to convert guidance into practice. An effective compliance program will communicate the corporate E&C values through multiple channels throughout the company, on an ongoing basis. This speaks not only to upward and downward communications within an organization but also inbound and outbound to the company as well. But more than simply saying there should be communication, the Report also assesses how communications occur through inquiring into the clearness and conciseness of messages and whether an organization uses more effective communication techniques such as shorter, more frequent training models or facilitated workshops as opposed to rote one hour lectures from lawyers.
Divers also pointed out that communications can be made in other, more subtle manners. She said the Report assessed, “what are the actual behaviors that the conduct demonstrates? We’re not so fond here of tone at the top. We’re more fond of actions at the top, because tone can be one thing and actions are another. Looking at whether managers’ ethical behavior counts in terms of promotion and bonuses, that’s really where the rubber meets the road in a lot of places, and that makes a huge difference. Another aspect of that is making middle managers accountable for ethics and compliance in their business, and the good programs coach people in that aspect. That’s really some of the key aspects we looked at for how you embed in business ops.”
High-performing programs proactively convert regulatory guidance into practice. I found this to be one not often enough discussed as many compliance practitioners struggle to convert DOJ pronouncements, comments or lessons learned from Foreign Corrupt Practices Act (FCPA) enforcement actions into practical guidance. As the Report notes, “The most effective programs internalize such guidance and continuously improve.” Here one might consider an example torn from the headlines: when the Wal-Mart corruption scandal in Mexico broke, I called one CCO the next day who told me he had already put a PowerPoint presentation in front of his senior management about the perils of finding your corporate name splashed across the front page of the New York Times (NYT) alleging your organization of bribery and corruption.
Divers considered this finding from another perspective. She stated, “You have to look for the actual challenge the people view in the company, whether that’s sales force, or other disciplines. There in lots of different ways and in positive ways, not just negative ways. One of the things we did, which we didn’t just tell people that serious actions meant this, we looked at actual business cases where people had done the right thing and made the right choices to comply with regulations, and that’s very powerful for modeling. Another aspect of that is how you embed your Code of Conduct. Do you just put it out on the website and say, “Great, here it is. Read it,” or you have discussion? Obviously, those are more effective.”
High-performing programs spread their impact broadly, recognizing that it is the whole organization that needs to be engaged in ethics. This finding considers whether an organization has moved away from a “silo-based approach to ethics and compliance.” It did so by reviewing how the different corporate functions work as catalysts for imbuing your organization values in their specific corporate discipline. Here Divers related that “high performing programs aren’t sitting in a closet somewhere, only visited when there’s an ethics issue. High-performing programs are out there. They work across the corporation with human resources, with internal audit, with legal, and even with sales and marketing, and finance and accounting, to make sure that ethics are a part and parcel of business operations.”
Tomorrow I consider “the path forward”.
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