Updated: Dec 4, 2019
This blog post is written in recognition of Corporate Compliance and Ethics Week.
In a world of ever-increasing regulations, harsher regulatory scrutiny, and rising enforcement actions, it is not surprising that the costs of noncompliance are climbing. This makes compliance more important than ever before. However, compliance isn’t just about regulatory filings, although that’s certainly a part of it. It involves creating an ethical culture throughout the organization, which requires planning as well as strong and ongoing commitment at the highest organizational levels. Fortunately, the minimal costs of implementing a compliance and ethics program (CEP) are far outweighed by the benefits to the organization. In fact, a solid ethical culture has been shown to result in more profitable companies and long-term operational stability.
Ethics and compliance are both equally important to organizations, and although seemingly alike, it’s important to understand the distinction between the two terms. Ethics is rooted in the values by which people live their lives and contains an element of subjectivity. It is about doing the right thing, regardless of what the law requires. In other words, ethical conduct beyond what is required by the law is optional with the individual. Treating fellow employees with respect and taking accountability for errors are examples of ethical workplace behaviors.
Compliance has its basis in ethics, but is much simpler to define and is more objective. It is a legal requirement which involves following rules and policies. The emphasis is on statutory and regulatory requirements. Simply put, it is the process of ensuring that the organization and its employees adhere to applicable laws, regulations, standards, and internal policies. The performance of due diligence in accordance with internal procedures and regulatory requirements is an example of compliance.
Ethics and Compliance in the Workplace
Understanding ethics and compliance will help organizations create an ethical culture and a legally compliant workplace. It will also serve as a basis for an effective ethics and compliance program which, in turn, can prevent employee misconduct, reduce corporate and director liability, and help prevent costly enforcement actions, steep fines and penalties. Additionally, organizations with good reputations are more likely to attract top talent.
Senior management shapes the climate and defines the standards for an organization. Employees will embody the values and beliefs modeled by their superiors. It’s important that management makes their commitment to ethics and compliance a priority, thereby setting the right “tone at the top.” This is achieved by promoting ethics and compliance to all employees throughout the organization with clear and ongoing communication from senior leaders.
Characteristics of Ethical Organizations
Ethical organizations are first and foremost based on principles of fairness. Such organizations demonstrate a consistency in treatment whereby all stakeholders, regardless of rank or level, are treated equally and without discrimination. Benefit to stakeholders is given precedence over individual interests. There is communication and transparency, including well-documented processes and procedures. Expectations are clear and disciplinary measures are proportionate. Bureaucracy is at a minimum. Unequivocally, the organization complies with applicable laws and regulations, as do its employees.
Cornerstone of an Effective Ethics and Compliance Program
A Code of Conduct, also referred to as a Code of Ethics or Business Code, is the cornerstone of an effective CEP. The purpose of this document is to provide employees and clients with concrete guidelines, communicate the organization’s commitment to ethics and compliance, define the organization’s expectations and requirements, and state the consequences for failing to meet these standards. The Code of Conduct serves as a reference to support employee decision-making in the handling of ethical dilemmas, and it should be reviewed regularly and communicated continuously. A properly written and effectively communicated Code of Conduct fundamentally demonstrates an organization’s commitment to ethics and compliance and empowers employees to act accordingly.
Compliance and ethics work in tandem. A strong ethical culture within an organization promotes trust and transparency and will lead to a high functioning CEP. #CCEW