Does Your Compliance Training Inspire Employees to Follow Rules or Follow Values?


I read an article in the Wall Street Journal wherein Michael McMillan, director of ethics and professional standards at the CFA Institute, was interviewed and discussed the difference between following the rules and behaving ethically. I loved this article because Mr. McMillan had a very eloquent way of drawing the line between ethics and compliance, which in my mind is the line between obeying rules and laws, and following values.

The Wall Street Journal asked Mr. McMillan “What is the difference between ethics and compliance?” Here is his answer:

“ Compliance really focuses upon rules and regulations. Are you following the rules, are you following the regulations and the laws of your company, or the laws and regulations of the country or environment in which you work? Ethics are completely different. Ethics are about encouraging behavior that is above just following rules and regulations. It is requiring to get people to act more in consonant with the values of the company. Part of the problem with the financial crisis–and part of why you have organizations like Occupy Wall Street, why we lost trust with the investment industry–is that people were following rules and regulations but still weren’t being ethical. There is a big difference between following the law and being ethical. Very few people were charged with crimes or convicted of crimes because what they were doing wasn’t necessarily illegal, but many people viewed it as being unethical.”

I think that sums up the divide perfectly. During the last economic downturn when everything started to collapse and the pundits and reporters started pointing fingers, I was amazed at the “but it’s legal” arguments that were flying around. And the truth is, that type of behavior was, in many instances, legal. It just wasn’t ethical.

Ethics and Compliance Must Coexist

When your company’s compliance team is preparing its compliance training program, are they thinking purely about ensuring your employees behave according to laws and regulations? Or are they thinking about ethics and values as well? We’ve blogged often about how an organization’s Code of Conduct is a great place to establish a company’s values and certainly your Code of Conduct compliance training should reaffirm those values and educate your employees on how to behave ethically and use ethical principles in business. But, beyond the Code of Conduct training, or ethics in business training, many compliance training courses focus very heavily on obeying rules and laws.

Naturally, employees must be educated on both and that’s where the balance is. One of the most interesting things Mr. McMillan said in the WSJ article was in response to their questions regarding whether companies can have good compliance programs without being based on strong ethical values or have strong ethical cultures and weak compliance programs. To paraphrase Mr. McMillan, yes, both situations can be possible. Compliance means following rules and regulations but “that doesn’t mean these same employees are acting in the best interests of their clients or customers. Just because you have a good or great compliance program doesn’t mean people are not going to be behaving unethically or not have an environment that encourages unethical behavior.”

However, even more powerfully, he pointed out:

“If you have a strong ethical culture then you don’t really need to have a huge compliance department because people are going to do the right thing because that’s what the values of the company are promoting. The stronger the ethical culture of the company the less you need a large or well-developed compliance program.”

I couldn’t agree more – you can probably hear many of us in the ethics and compliance industry clapping right about now. We’ve been carrying that torch for many years. If you build the ethical culture, if you build an ethical foundation, you don’t have to worry about the rules so much because people don’t break them. It’s not in their nature because it’s not in the culture. Forgive me a crazy analogy, but I have a friend who is an aesthetician. She says for beautiful skin you can break it down from the surface with good products or you can build it up from the inside by eating a healthy diet and drinking a lot of water. But really, you should be doing both for the best results.

It’s the same thing here. You can implement compliance training and awareness that educates your employees on the laws and rules they need to know and you can build up an ethical culture that inspires and rewards ethical behavior. But really, you should be doing both for the best results.

Ethics and Workplace Culture

I’ve mentioned compliance training and awareness several times here but really, ethics is about much more than that, as is culture. Ethics and values should be infused throughout the entire organization. Mr. McMillan says in the interview he looks closely at how involved middle managers are in the ethics program because while “tone at the top” is critical, if it’s not being manifested by the middle managers, it breaks down.

Mr. McMillan also gives ethics training himself, during which he provides an ethics manifesto from a well known company. It’s called RICE -respect, integrity, communications and excellence. When he asks his students who would want to work at a company like that, they nearly all raise their hands… and are then surprised to learn that the statement comes from Enron. I’ve heard that same statement from the Enron Code of Conduct from Michael Rasmussen of GRC 20/20 Research. He essentially says the same thing Mr. McMillan does, which is that ethics and value statements and Codes of Conducts mean nothing without a culture that actually support them.

I believe companies should be educating employees about both ethics and compliance, not one or the other. What does your organization do?


DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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