Only just over half (53%) of ethics, compliance and legal executives say their companies’ senior leaders take action and responsibility when there are ethics and compliance failures. And less than half (46%) say leaders support effective sanctions or penalties on executives involved in misconduct.
That’s according to a survey of 500 ethics, compliance and legal professionals by LRN Corporation, the ethics and compliance firm. The surveyed results were analyzed as the pandemic was setting in.
“Managing through the pandemic involves added stress, new and risky working situations and the imperative for dramatic managerial moves to navigate business changes – can companies prevent misconduct and advance ethics- and values-rich cultures as day-to-day work life continues to be disrupted? Our survey findings strike a note of concern,” said LRN Senior Advisor Susan Divers, coauthor of the survey and the resulting report, Confronting the Root Causes of Misconduct.
For instance, companies may move quickly in M&A activity based on low valuations or in pursuit of increased revenues, margins and synergies – but the survey results raise the question of whether ethics and conduct will play a big enough role in the due diligence of such transactions: Only 44% of ethics, compliance and legal executives say the ethics and compliance (E&C) function is involved in merger and acquisition due diligence, and only 34% said their organizations track and remediate misconduct or misconduct risks during the pre-acquisition phase of deals.
And, in a period when cash may be tight and liquidity and revenue generation critically important goals, will ethics and conduct get the consideration it deserves? “Conduct and ethics have, arguably, often been discounted compared with other criteria when it comes to compensation and setting business goals, so it’s reasonable to be concerned that they could be set aside to an even greater degree,” said Emily Miner, Senior Advisor at LRN and report coauthor.
In the survey, only 31% of ethics, compliance and legal professionals say their companies recognize notable ethical conduct or leadership when it comes to bonus allocation; only 37% say the organization takes ethics and compliance into account when setting sales targets or business goals; and only 39% say the company makes ethics and compliance a consideration when they hire for managerial, executive or control functions.
Despite these potential gaps in keeping conduct and ethics in clear sight, some findings suggest the underlying structure is there at most companies. The report says this is especially the case if the E&C function has the mandate to help in the process. Eighty percent of ethics, compliance and legal professionals said they think the E&C function at their company has sufficient resources to inspire ethical behavior and prevent misconduct, and 83% say the E&C function has the ability to raise issues directly with the organization’s c-suite or board. To boot, 75% said they believe ethical behavior is taken into account when it comes to selecting employees for promotion at their firms.
“The infrastructure gaps can be closed. When board members, senior leadership and managers have the will to make conduct and strong ethics genuine organizational priorities, the ethics and compliance function can go a long way to help drive doing the right thing throughout the company,” said Divers.
LRN used the study to develop a training guide to help companies and business leaders bolster their E&C programs. The guide identifies the practices in E&C training programs with the highest impact on organizational culture and strategy, and discusses ways to implement them. For more information on E&C Training: A Guide to Leading Practices, please visit here.
About the Survey
The 2020 Ethics & Compliance Program Effectiveness Report: Confronting the Root Causes of Misconduct is based on a survey of 500 ethics, compliance and legal executives and experts around the world. It was conducted during the second half of 2019 and analyzed for this report during early spring 2020.