Practical Suggestions on ‘Why Compliance Programs Fail’

by Parker Poe Adams & Bernstein LLP

I recently cracked open my Harvard Business Review to the article on “Why Compliance Programs Fail.” I read with great interest the authors’ theory on how weak, milk-toast metrics can result in check-the-box, paper-only compliance programs. I don’t disagree at all, but I have a few practical suggestions to add.

The authors cite, as have many, the shocking statistic from EY’s 2016 Global Fraud Survey that out of nearly 3,000 executives surveyed, 42 percent said they could justify unethical behavior to meet financial targets. Clearly, something is misaligned. The HBR authors postulate a case for better metrics aligned to strategy. It is a well-reasoned argument with which I do not quibble. But the sentence that captured my interest is this one:

“While many firms continue to see ensuring compliance as a legal exercise, it is really much more a behavioral science.”

Full stop, goal-post arms, winner winner chicken dinner!

From years in the trenches, I wrapped my head and heart around my belief that leading either a compliance or a safety program puts you at the core of your organization’s culture. A program that focuses on building a compliance culture – “the way of compliance” – will beat out a metrics-driven program, hands down. And yes, you can measure it.

It took time: my time, my staff’s time, and my fellow executives’ time, which was given freely. We walked the talk, and we shared our own personal stories. We made compliance specific and relatable to what our employees may actually see in their day-to-day work. We listened. We triaged. We tracked metrics. We made it clear we did not “play in the gray” – we honored both the letter and intent of the rules and regulations applicable to our business. And when a metric told a story we believed posed a risk to our behavioral-based compliance program, we took a harder look.

For example, we (like so many) conducted employee engagement surveys. Statements included the usual: “I trust my supervisor to do what is right,” “I can speak up without fear of retribution,” and “I trust senior management.” If a department came back with low scores on those statements and others that we segregated into a compliance view or scorecard, we held group sessions with those employees absent their management. That sometimes led to findings of unethical behavior, even low-level fraud. And yes, people lost their jobs on occasion. We replaced managers with new leaders. Employees thanked us. And we averted what could have been a compliance crisis.

We also conducted face-to-face training – a relic in this era of computer-based training programs. Although we used computer-based training too, one of the most personally satisfying experiences of my career was conducting live, three-hour training courses in group sessions of no more than 30 employees or so. My colleague and I ran the training together, and we made it highly personal. We level set for employees the key elements of a compliance program, why OUR company had one, and who benefited from it (all of our stakeholders: customers, employees, and shareholders alike).

We asked the groups what they thought our greatest compliance risk was and which compliance areas they had the most questions about. We walked them through the hotline process. We shared compliance results without violating trust. We let them know we were providing the training because we wanted to help them succeed. I like to think we made the program come alive for them.

Behavioral-based programs rely on leading indicators rather than lagging metrics to drive results. So, to the HBR authors’ list of metrics, I would amplify a few they identified and add a few of my own.

The ethics “hotline” can be a wealth of data, if your employees use it. Encourage it as a source for answers, not just a place to report suspected violations – employees most often have questions about conflicts, gifts, and gratuities. Keep track of the incoming calls that are seeking guidance. Reward those who ask questions with a small token of some sort. Catalog the questions and use them to design training.

The amount of meaningful training you provide is a leading indicator. Short, frequent training on just a few discrete topics is much better received than the hourlong computer-based training, no matter how entertaining it may be. How your leaders show up in group employee settings is a leading indicator. Encourage others to open a meeting with a compliance topic and host a central repository for ideas. I walked into a room one day to newspapers scattered on the tables. An engaged manager simply asked the room to shout out the headlines they saw that related to compliance and then led a quick discussion around a few. Keep track of this activity: It too is a type of compliance training.

Finally, being proactive as the leader of your company’s compliance program is a huge leading indicator. When was the last time you had your program examined from the outside? Or refreshed your code of conduct to make it relevant to your employees’ everyday work life? Open yourself up to letting experts find your blind spot in order to shore up your compliance. If 42 percent of EXECUTIVES think they can justify unethical behavior to meet financial targets, chances are one of them works for you. Resting on your laurels is not good enough, and your stakeholders – your customers, employees, and owners – deserve a program that leads to ethical behavior.

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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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