A corporation’s compliance culture: that intangible force that permeates a company’s entire way of doing business. Like an invisible hand of ethical expectations, it guides employees to do the right thing in difficult situations. But how well are companies cultivating their compliance culture?
In a recent 2012 survey conducted by Ernst & Young, a stunning 15% of respondents said that they were prepared to make cash bribes to win or retain business. That means that 15% of respondents were willing to break the law – putting themselves and their companies at risk of criminal penalties – in order to win a business opportunity. The survey was comprised of 1,700 interviews of chief financial officers and heads of legal, compliance and internal audit in 43 different countries. The survey is a cold reminder that for a sizable minority of companies the message remains plain: win at any cost.
A healthy compliance culture, on the other hand, not only helps a company stay out of trouble, but it also builds a company’s reputation as trustworthy and can often lead to gaining new business opportunities. How, then, to change the message? Below are three steps that compliance officers are taking in the uphill battle towards building a better compliance culture at their companies:
1) Change The Incentive Structure – Studies have found that people act dishonestly less out of a desire for personal gain and more out of anxiety for what will happen to them if they don’t cheat. In a recent article in Scientific America Mind entitled “Why We Cheat”, it was revealed that “many instances of dishonesty in the real world result when people find themselves in a situation in which they face losing money, reputation or their career.” That goes double in a bad economy. “There is little question that the current economic situation has exerted negative pressure on employees,” writes Ernst & Young in their report. “One of the most troubling findings of the survey is the widespread acceptance of unethical business practices.”
Companies need to be aware of these pressures and create incentive structures and reward systems that counteract the impulses to act unethically. This entails giving employees a sense of security that they will be rewarded, not punished, by doing the right thing.
That’s what Walmart’s trying to do right now. Last year, Walmart made front-page headlines when it was alleged that their employees had been paying bribes in various countries around the world. Since then, the company has spent millions of dollars to reform its compliance program, and, more importantly, change its compliance culture. Part of that shift has been changing its executive compensation plan so that pay is not only based on financial measures, like sales, operating income, and return on investment, but also based on whether they’ve successfully overhauled their compliance operations. By changing the incentive structure, such as Walmart is trying to do, companies send a message to their employees that compliance is more than just some hollow promise.
2) Nip Bad Behavior in the Bud – Strict enforcement against infractions – even minor ones – can help prevent bigger problems down the road. It’s what Dan Ariely, a behavioral economist at Duke University, describes as the “what the hell effect” – an attitude that develops after a person has already broken a rule once, leading them to cheat more frequently. “Just as an untreated minor infection may progress to a more serious condition, minor acts of dishonesty that pass without consequences may be followed by more egregious misconduct,” writes Scientific Mind. More…