Measuring Tone At The Top

by Michael Volkov

toneatthetop3Compliance professionals have a lot of demands on their time. By definition, they are spread thin across a number of competing demands.  As a result, companies do not spend much time on “tone-at-the-top.”

In reality, compliance officers are relieved when they get the support of the CEO, and the ability to cite the CEO’s commitment to compliance.  Often the CEO’s support translates into resources and a compliance priority in the organization.

The importance of tone-at-the-top is significant.  A 2009 research report conducted by the National Business Ethics Survey found that in strong ethical cultures, the pressure to commit misconduct was reduced from 16 percent to 4 percent; rates of misconduct were reduced from 77 percent to 40 percent; failure to report misconduct was reduced from 44 to 27 percent.

The question then is how do you measure the internal perception of your company’s tone at the top?

There are a number of possible measurements:

Internal auditor survey.  Internal auditors are starting to measure the perception of tone at the top.  Companies that measure their own tone at the top, and report the results tend to have higher perceptions of ethical conduct at the higher levels of corporate management.

Anonymous reporting.  Companies should examine the percentage of complaints which are made by anonymous employees.  The higher the percentage of anonymous complaints could reflect a lower perception of the importance of compliance.toneatthetop

Benchmarking.  Companies can examine the rates of misconduct against companies of comparable size.  If the benchmarking data shows the company is under or over the benchmarking rate, this may reflect a positive or negative perception of the tone at the top.

Employee surveys.  Many companies conduct annual surveys of employees, which reveal employee perceptions of senior management and their commitment to compliance.

Review of senior management communications. Reading communications by senior management to employees on compliance issues can provide insight into compliance commitment and attitudes.

Interviews and focus groups.  Compliance officers have used employee interviews and focus groups to unearth perceptions of senior management’s compliance commitment.

toneatthetop2Employee exit interviews.  Compliance officers and human resource officers can coordinate exit interviews with departing employees to inquire on perception of tone at the top.

Management’s commitment to compliance is a critical factor in a company’s internal controls and corporate governance.  It is important to measure the perception of a company’s commitment to compliance.  It permeates every aspect of a corporate compliance program.

While the measurement of tone at the top is subject to “soft” measurements, it is still a worthwhile exercise which can uncover important information which can be used by compliance professionals to improve the company’s compliance program.

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.

© Michael Volkov, The Volkov Law Group | Attorney Advertising

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Michael Volkov

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