CCOs 2022 To-Do List: Ethical Culture and ESG

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The Volkov Law Group

Chief compliance officers have a difficult job (to say the least).  If everything goes well, they are hailed as heroes.  If a major problem occurs, everyone looks to the CCO to find out why the problem occurred.  In the latter situation, the implicit message to CCOs is “why didn’t you prevent this problem, I thought you were supposed to prevent this.”  This reflects a fundamental failure of an organization to understand exactly what ethics and compliance programs are intended to accomplish.

Over the last year, CCOs were swept up in the Environmental Social and Governance movement.  Some companies asked CCOs to take on this new ESG responsibility.  Others were asked to play a key role in the ESG effort.

My view has been consistent on this important trend – CCO has to participate as a robust partner, particularly with respect to Governance issues (I call it the “Big G”) but has to avoid overall responsibility for ESG program.  It is too easy for CCOs and their supporters to take on responsibility without thinking about the consequences.  CCOs have to take a deep breath and think carefully before they leap.

Let me explain my position.  CCOs have a high priority project that needs attention – the company’s ethical culture.  Luckily, this task dovetails neatly into the ESG/Big G framework. Corporate culture is an issue that too few CCOs take on because it requires a little effort, some creativity and education within the company.  Yes, of course, everyone mouths the words in support of corporate culture (e.g. “We have a great culture,” “We do the right thing,” and “Our leadership team is committed to maintaining its ethical culture). 

Deep down, however, CCOs know that they should be pushing the culture initiative into a new and critical area – defining a culture, measuring a culture, monitoring a culture and remediating its culture. It is time for CCOs to step up, make a clean statement of commitment, and begin the work that is needed.

I  am not suggesting that this is easy.  But before taking on the newest hot corporate initiative, ESG, CCOs have to get their own houses in order and direct their efforts to support the Governance/Big G issues.  At the heart of corporate governance is the organization’s commitment to an ethical culture.  In the absence of such a commitment, companies are doomed to suffer financial, enforcement and reputational damage.  Instead of jumping onto the ESG bandwagon, CCOs have to turn inward and stand up a true ethical culture and surrounding set of controls.

As part of this effort, CCO have to craft a program to generate “culture data,” report on that data to senior management and the board at least quarterly, and then manage its culture based on culture performance data. 

I know my view may not be the most popular among compliance professionals and commentators but I have consistently argued that CCOs are the natural prpotectors of a company’s culture.  CCOs have to lead on implementing a company’s ethical culture, including targeted value statements, senior management commitments to culture tasks and actions, culture surveys, focus groups and other functions needed to promote and embed an ethical culture.  In the end, CCOs play a critical role in protecting and advancing a company’s reputation.  CCOs are in the hot seat to oversee this important intangible asset.

If asked, CCOs will candidly acknowledge that they have more to do in this area.  CCOs know that this is a high priority and it is a difficult initiative to organize and implement.  But in the end it is critical to every ethics and compliance program.

ESG advocates need to understand the importance of a company’s ethical culture.  An ethical company will experience significantly lower rates of employee misconduct, increases in employee productivity, and ultimately improved and sustainable financial performance.  In this situation, ESG advocates should understand the importance to establishing and maintaining an ethical culture is essential to the success of any corporate initiative, such as ESG, business growth or expansion, or other business strategies. 

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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