Invest in ethics and compliance effectiveness to build more resilience

12 April 2023 7 min. read
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With economic and geopolitical headwinds looming large around the world, companies and organisations need to pay even more – not less – attention to their ethics and compliance efforts to ensure resilience and optimal performance, writes Ty Francis, Chief Advisory Officer at LRN.

The past year has seen the exacerbation of many uncertainties, impacting businesses and organisations worldwide.

Amidst growing regulatory scrutiny, economic instability, stakeholder activism, trade sanctions, and supply chain disruptions among several factors, organisations need to know where they stand — and their ethical outlook will keep them anchored as they safeguard their business performance.

Meeting challenges of the past 12 months

The numbers spell out this difference, too. The 2023 edition of LRN’s Ethics & Compliance Program Effectiveness Report reflects a significant performance gap, starker than ever before, between organisations which are doing the minimum and those that continue to strive for the highest standards when it comes to ethics and compliance.

Businesses find themselves now in a perfect storm of risks that only continue to grow, and given the emphasis by regulators around the world on accountability, it is critical that boards and C-suite leaders ensure their organisation’s ethics & compliance programs are well-resourced, supported, and effective.

Fortunately, more organisations are beginning to fully understand the repercussions ethics and compliance can impart onto their businesses, laying the groundwork to build their internal ethical culture to build ethically inspired workforces. The report found that most of its respondents (84%) said their organisations relied on values, rather than rules, to motivate their employees to “do the right thing.”

How effective is the board of directors in supporting your E&C program

Most respondents (85%) also reported that their ethical cultures were stronger as a result of their experiences meeting the challenges of the past year, with more than half of respondents giving their executives high marks for taking ethical considerations into account in business decision-making. Increased focus on ethics and compliance is making a real difference on the ground, with more than half (52%) of respondents reporting that consideration of ethical and compliance factors and risks leads to their organisation substantially modifying or even abandoning a business initiative where necessary.

With these insights, companies that meet the benchmark for compliance can do more — while there are several areas of improvement for organisations only beginning to catch up.

Companies need to ramp up their sanctions compliance

When it comes to complying with trade controls and sanctions, size doesn’t matter. From small to mid-size companies or large corporations, everyone has a part to play in adhering to regulations – or risk hefty penalties.

Despite the war in Ukraine and enhanced or escalating sanctions on a number of countries globally, only a quarter (25%) of respondents said that they plan to enhance their trade controls and sanctions training and just under half (45%) have strengthened risk controls in this area.

Which statements best describe the biggest obstacles to improving your E&C programs impact and effectiveness over the past 12 months

To add, only a few companies worldwide (45%) have taken concrete actions to strengthen their trade controls and training around sanctions. Amongst those who have not taken action, only a quarter (25%) of organisations pledged to include sanctions training in their ethics and compliance programs.

With an increasingly globalised marketplace, compliance can be easier said than done. Entities under sanctioned countries may have hidden subsidiaries within the supply chain. Maximum compliance is necessary in order to keep organisations protected and mitigate risks. Big or small, organisations need to start screening – if they aren’t already – existing customers, suppliers, and contractors.

To stay on the right side of sanction regulations, organisations can adopt the following best practices:

  • Identify key risks and make sure they are reviewed, updated and where possible, addressed regularly.
  • Establish a robust ethics and compliance protocol to mitigate risk.
  • Put in place clear policies that tell everyone what they need to do in simple terms to maintain compliance.
  • Train all staff regularly on compliance requirements; many such rules can appear to be counter-intuitive and complicated, but require adherence nonetheless.
  • Regularly audit compliance actions with the latest requirements to make sure they are being followed.

How high of a priority will the following enhancements be to your E&C program in the near future

Role of ethics continue to grow in the workplace

The importance of ethics and the consequences of ethical misconduct continue to grow in the workplace as more organisations take a heavier approach to correcting unethical behaviour.

Most respondents (60%) felt that their board of directors actively ensures that misconduct by senior executives is effectively addressed, with three-fifths of those surveyed reporting that their organisation has formal requirements to take into account executives’ and employees’ ethical behaviour in performance evaluations, promotion decisions, bonus awards and hiring for key control functions.

More than two-fifths (44%) of respondents also said that their organisation has disciplined or terminated the employment of a senior executive or top performer for unethical behaviour in the past year – with three quarters (76%) of those respondents saying that the individual was subject to financial “claw back”.

Investing in ethics and compliance

Ethics and compliance programmes worldwide are hitting a wall when it comes to improving their reach, employee engagement, and use of data metrics. In order to meet the challenges of remote and hybrid work, organisations need to invest in processes that make these systems simpler and more efficient.

Measuring training effectiveness and impact - the hight performance premium

Greater use of data and metrics to assess program effectiveness was reported by more than half (52%) of respondents, but only 20% actually improved their ability to capture and understand such metrics. Meanwhile, a significant number of respondents (76%) said their internal systems need upgrading to facilitate better training, web-based resources and data collection.

Meanwhile, 73% said that staff shortages and budget constraints in their ethics and compliance departments hindered program implementation.

It’s clear that organisations need to provide stronger support for their ethics and compliance programs to ensure full and effective implementation – that will in turn lead to greater business and organisational resilience even in tough times.