[author: Charlotte Emerson]

Ethics and compliance are two sides of the same coin. Compliance is following the law, while ethics is doing what is right regardless of what the law says. Compliance is typically thought of as something required by the government or regulatory bodies. Ethics, however, is something organizations choose to consider when outlining company values and code of conduct. Undoubtedly, both ethics and compliance in companies are matters taken seriously by senior management and the board. However, according to the recent 2023 NAVEX State of Risk & Compliance Report, it appears lower in attention level than before.

This year’s survey findings show that employees believe their senior leaders take their role in encouraging compliance seriously. According to respondents, three-quarters indicated that senior leaders promote compliance within the organization and nearly as many report that senior leaders demonstrate their commitment to employee compliance. This is an encouraging sign of senior leadership’s strong commitment to compliance and culture.

However, the disconnect between the demonstrated commitment to compliance efforts and the persistence of this commitment in the face of competing interests and business objectives continues, as we have seen in past surveys. While 70% of respondents said, senior leaders demonstrated a commitment, only 47% said the commitment persisted in the face of competing interests or objectives.

Notably, while 52% of U.S. respondents said senior leaders stayed their responsibility in the front of competing interests, only 33% in France, 34% in Germany and 41% in the U.K. said the same.

As another reflection of leadership’s commitment, 74% of respondents indicated their organization had established a board- or management-level committee to address enterprise-wide risk integration (34% and 41%, respectively). Leadership seems to be prioritizing this issue.

Management’s declining commitment is a red flag.

While senior management’s commitment to ethics and compliance is encouraging, this commitment is somewhat lower among mid-level management, as all measures in this area have slipped compared to 2022.

Respondents indicated that, among management, “commitment to compliance efforts” and “commitment in the face of competing interests” dropped by 8 and 9%, respectively. The data also suggests that the organization’s tolerance for greater compliance risk, unethical behavior and impediments to compliance personnel increased in 2023 – in some cases, by as much as 16%.

Interestingly, respondents in Germany were much more likely to call out negative behaviors among managers – 45% said managers tolerated greater compliance risk in pursuing business objectives, 39% said managers encouraged employees to act unethically, and 44% said managers impeded compliance personnel from doing their duties.

This dissonance between perceived leadership commitment to compliance and what respondents say is the behavior at the mid-manager level is concerning, especially given the precipitous drop seen in the 2023 data. One possible explanation is that managers feel unusually high pressure from leadership to reach business objectives and KPIs. In contrast, executive leadership must know the ethical and compliance compromises to achieve those objectives.

Ethics and compliance remain key priorities and objectives within companies for 2023. However, many employees feel their managers have lowered their expectations of remaining compliant, perhaps due to workplace and team stresses.

The most mature and well-structured programs will recognize the difference between ethics and compliance and drive both as integral components of company culture and successful performance. In the end, companies that follow the law and prioritize ethics have a competitive advantage.

Despite this, compliance and ethics are areas in companies that managers should consistently seek to improve and be on top of. Poor performance in these areas can result in high whistleblowing report numbers, increased turnover, and a negative reputation. The most mature and well-structured programs will recognize the difference between ethics and compliance and drive both as integral components of company culture and successful performance. In the end, companies that follow the law and prioritize ethics have a competitive advantage.