Ethics Aren’t About Limiting Risk

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Designed right, an ethics and compliance program is not just about limiting risk. You’re setting your sights too low.  In fact with that narrow mindset, you’re likely setting your organization up for failure, or at least missing the opportunity to add true value to the enterprise.

Design your program with a much bigger picture in mind -- to support growth and business success.

For example, let’s take managing third parties and entering less regulated geographies.

If you don’t make ethics and compliance a metric for success at the very outset, at the very beginning of your conversation, you are telegraphing to employees, partners and vendors that revenue, speed and other measures matter more than how they are achieved – especially if no one seems to be paying much attention or asking any questions. If your employees and partners can meet your baseline metrics while staying clear of tough scrutiny and out of trouble, then they will be rewarded. Success with ethics and compliance becomes avoiding fines, scandal… avoiding negatives, rather than reaping the material rewards that a truly ethical culture and set of business practices offer.

Consider the following scenario. When confronted with customs officers asking for an off-the-books fee to expedite the process, your vendor assesses the situation knowing they need to meet your timeline. They need to get the units they are moving onto shelves before it’s autumn. The fee isn’t exactly a bribe, or is it? Maybe pay it, rather than face the consequences of missing the timing they are compensated for. And why ask questions?  Won’t that just draw attention to the situation and make the client potentially question the relationship with the vendor?  And isn’t this just how business is done in this particular country?  It seems so much more efficient and business friendly to just work “within the system” and move on….

When your vendor moves through customs the next time around, the fee has become standard for them. They are desensitized. In fact, maybe it’s even increased.

A November Forbes article discusses how a descent into bribery can hurt both a company’s reputation, as well as employee morale, magnifying the cost of that small first palm-greasing. We’ve known this for some time. Jakob Svensson, a researcher for The World Bank, has long produced copious evidence showing the rate of bribery is negatively correlated with an organization’s growth.

In the meantime at that customs post, your vendor has lost the opportunity to meet your expectation of walking away from a bribe situation, and supporting your reputation as a business that expects the same of all those it engages. That kind of reputation would mean those same customs officers know there’s no point in asking for the bribe, perhaps even a risk of doing so.

A good reputation spreads. It implies that not only do you not pay bribes, but you probably don’t cut corners elsewhere. Your products and services are likely of good quality, and your organization is stable and trustworthy.

Recent studies show companies with higher corporate integrity (as expressed by their culture) outperformed those with the lowest corporate integrity by double digit percentages when it came to shareholder return. Companies with open communication also saw significantly higher shareholder returns. Elaine Dezenski, senior director and head of the World Economic Forum Partnering Against Corruption Initiative, regularly speaks on the value rooting out corruption.

Now ask yourself if you clearly and effectively communicate these standards and expectations to all of your business partners – vendors, suppliers, agents etc. To date, ethics and compliance programs have focused largely internally on employees, neglecting the ever expanding network of third party relationships that are the new epicenter of risk. If you have no third party program, and are silent in your expectations, you are allowing business pressures and basic human nature to influence decision making in a very dangerous direction. One that can strike at the heart of your business’s core value.

Businesses make a major mistake when they divorce governance, risk and compliance from the investments they make in the brand, or pay lip service to it without building the connections necessary to the rewards earned by your team and partners.

So a correction to the pithy title of this post, an ethics and compliance program can limit your risks. But the best companies don’t aspire to fewer days spent in court or less regulatory scrutiny. They build a brand of quality and excellence that runs all the way through the company, drawing business to them. Not just smaller risks, bigger wins too.

- See more at: http://www.navexglobal.com/blog/2013/11/13/ethics-aren%E2%80%99t-about-limiting-risk#sthash.kch7a9WL.dpuf

Designed right, an ethics and compliance program is not just about limiting risk. You’re setting your sights too low.  In fact with that narrow mindset, you’re likely setting your organization up for failure, or at least missing the opportunity to add true value to the enterprise.

Design your program with a much bigger picture in mind -- to support growth and business success.

For example, let’s take managing third parties and entering less regulated geographies.

If you don’t make ethics and compliance a metric for success at the very outset, at the very beginning of your conversation, you are telegraphing to employees, partners and vendors that revenue, speed and other measures matter more than how they are achieved – especially if no one seems to be paying much attention or asking any questions. If your employees and partners can meet your baseline metrics while staying clear of tough scrutiny and out of trouble, then they will be rewarded. Success with ethics and compliance becomes avoiding fines, scandal… avoiding negatives, rather than reaping the material rewards that a truly ethical culture and set of business practices offer.

Consider the following scenario. When confronted with customs officers asking for an off-the-books fee to expedite the process, your vendor assesses the situation knowing they need to meet your timeline. They need to get the units they are moving onto shelves before it’s autumn. The fee isn’t exactly a bribe, or is it? Maybe pay it, rather than face the consequences of missing the timing they are compensated for. And why ask questions?  Won’t that just draw attention to the situation and make the client potentially question the relationship with the vendor?  And isn’t this just how business is done in this particular country?  It seems so much more efficient and business friendly to just work “within the system” and move on….

When your vendor moves through customs the next time around, the fee has become standard for them. They are desensitized. In fact, maybe it’s even increased.

A November Forbes article discusses how a descent into bribery can hurt both a company’s reputation, as well as employee morale, magnifying the cost of that small first palm-greasing. We’ve known this for some time. Jakob Svensson, a researcher for The World Bank, has long produced copious evidence showing the rate of bribery is negatively correlated with an organization’s growth.

In the meantime at that customs post, your vendor has lost the opportunity to meet your expectation of walking away from a bribe situation, and supporting your reputation as a business that expects the same of all those it engages. That kind of reputation would mean those same customs officers know there’s no point in asking for the bribe, perhaps even a risk of doing so.

A good reputation spreads. It implies that not only do you not pay bribes, but you probably don’t cut corners elsewhere. Your products and services are likely of good quality, and your organization is stable and trustworthy.

Recent studies show companies with higher corporate integrity (as expressed by their culture) outperformed those with the lowest corporate integrity by double digit percentages when it came to shareholder return. Companies with open communication also saw significantly higher shareholder returns. Elaine Dezenski, senior director and head of the World Economic Forum Partnering Against Corruption Initiative, regularly speaks on the value rooting out corruption.

Now ask yourself if you clearly and effectively communicate these standards and expectations to all of your business partners – vendors, suppliers, agents etc. To date, ethics and compliance programs have focused largely internally on employees, neglecting the ever expanding network of third party relationships that are the new epicenter of risk. If you have no third party program, and are silent in your expectations, you are allowing business pressures and basic human nature to influence decision making in a very dangerous direction. One that can strike at the heart of your business’s core value.

Businesses make a major mistake when they divorce governance, risk and compliance from the investments they make in the brand, or pay lip service to it without building the connections necessary to the rewards earned by your team and partners.

So a correction to the pithy title of this post, an ethics and compliance program can limit your risks. But the best companies don’t aspire to fewer days spent in court or less regulatory scrutiny. They build a brand of quality and excellence that runs all the way through the company, drawing business to them. Not just smaller risks, bigger wins too.

 

Topics:  Compliance, Corporate Culture, Ethics, Risk Management

Published In: General Business Updates

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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