Referencing Ethics in Daily Business Decision-Making is Key Component of Effective Compliance Programs

LRN Releases 2015 Ethics & Compliance Effectiveness Report

Jun 17, 2015, 09:00 ET from LRN

NEW YORK, June 17, 2015 /PRNewswire/ -- LRN's 2015 Ethics & Compliance Effectiveness Report, released today, finds that senior executives raising ethics and compliance (E&C) issues in ordinary business settings such as staff meetings and operational reviews is one of the most significant indicators of an ethical corporate culture.  The report examines the corporate contexts within which E&C programs operate, identifying the impact of specific corporate strategic priorities, leadership behaviors, reporting structures, funding and other matters on program effectiveness. 

This is the eighth year that LRN has released data exploring the structure and activities of hundreds of E&C programs around the world and the degree to which each participating program has had impact on the organization of which it is a part.

The 2015 study is the third featuring LRN's Program Effectiveness Index (PEI), which identifies the factors most commonly associated with an effective E&C program. The index defines 'effective' programs as those that support the achievement of business goals, improve ethical behavior, and provide education and communication that impact employee decision-making. Companies are ranked relative to one another, on a scale of 0 to 1, based on their ethics and compliance program effectiveness. The average ethics and compliance program clocks in at a PEI score of 0.57.

"At LRN, we've been analyzing data provided by hundreds of E&C professionals for years, giving us unique insight into which behaviors and attributes of programs matter most," said Jean-Marc Levy, President, Ethics & Compliance Solutions at LRN. "This report is a valuable tool for E&C professionals, at any size company, who are committed to developing strategic and effective ethics & compliance programs."

Use of Assessment, Values and Code of Conduct Show Meaningful Differences

The 2015 report examines the behaviors and attributes of the 20 percent, or quintile, of programs at each end of the effectiveness spectrum, taking a particularly close look at the impact of assessments and metrics. The top-performing programs conduct assessments more frequently and use more metrics than those in the bottom quintile. In what is believed to be a first-of-its-kind review, the report tracks the use of twenty different metrics, identifying how frequently each is used in program assessment, risk assessment and board reporting. The findings include significant PEI differences associated with those uses, noting, for example, that the 46 percent of highly effective E&C leaders who use supplier and business partner feedback in program assessment average very impressive PEI scores of 0.65. 

The degree to which a program and company is values-based is also very telling. Of those in the top quintile, approximately half promulgate codes of conduct in which corporate values are consistently emphasized, which is associated with a PEI score of 0.62. Even more impressive is the 0.65 PEI score associated with organizations whose employees are likely or very likely to address the code of conduct when faced with a decision or dilemma. That is true of 72 percent of companies in the top quintile compared to only 14 percent percent of those in the bottom quintile.

What Senior Business Leaders Do Matters Far More than What They Say  

While it is now widely recognized that tone at the top plays a crucial role in E&C program impact and guiding the culture of an organization, the PEI data shows that there are several behaviors that stand out in this respect. Among those behaviors, none is more impactful than how often a member of the C-Suite addresses E&C issues in staff meetings, operational reviews, and similar settings. The 11 percent of respondents reporting that they often or very often engage in this behavior  have a truly towering average PEI of 0.79, compared to the well-below-average PEI of 0.51 for the nearly two-thirds of all respondents whose senior leaders bring up such matters rarely or not at all.

The report demonstrates that the E&C programs in the companies in which these "superstar" members of the C-Suite are found are almost twice as likely as all other programs to prioritize the connection between company policy and to day-to-day operations (64 percent to 34 percent). They are also much more likely to have integrated corporate values in their code of conduct and to have employees who turn to their code of conduct when faced with an ethical dilemma. In relation to middle management, companies led by a "superstar" C-Suite were found to more commonly adhere to and actively promote E&C across their organizations. What is more, by wide margins, these companies were more likely to have experienced increases in overall compliance (29 percent), levels of speaking up (33 percent), and employee engagement (37 percent).

Reporting Structures Make a Difference, But There is More to the Story

The 2015 report confirms that it is increasingly common for the leader of the E&C function to report directly to the CEO or the board of directors, and the impact of those programs is significantly higher than those who report to the General Counsel (GC).

Somewhat surprisingly, LRN also found that among the programs reporting directly to the CEO, those led by individuals acting as both GC and CECO (Chief Ethics & Compliance Officer) are more effective on average than those led by dedicated CECOs. Two reasons present themselves as potential causes of this gap. The first is that GC/CECOs are also twice as likely as dedicated CECOs to see their primary mission in terms of building ethical cultures, a principal driver of program effectiveness. Second, GC/CECOs appear to have more management support and operational access than do the independent CECOs, almost certainly as a result of the GC's daily work with the CEO and other senior officials on business matters.  The report suggests that the independent CECO who adopts the GC's culture and values focus and nurtures relationships with the business units and other corporate functions will close the gap over time.

"As the data from this year's report clearly demonstrates, successful E&C programs prioritize culture and values and operate within companies that do the same," said Wayne Brody, a member of LRN's Ethics and Compliance Advisory Services Practice. "We hope that compliance officers will utilize the data and analysis presented to engage with senior leaders of their organizations around a determined, strategic focus on culture, based on values and exemplified by how they do what they do."

To access the full report or to learn more about LRN's Program Effectiveness Index, including the methodology, visit http://pages.lrn.com/the-2015-ethics-and-compliance-program-effectiveness-report. Additionally, Wayne Brody will be hosting a live webinar to discuss the findings of the report on Tuesday, June 23. To register or to learn more information about the webinar, visit http://bit.ly/1f5qbkI.

About LRN: Inspiring Principled Performance 
Since 1994, LRN has helped over 20 million people at more than 700 companies worldwide simultaneously navigate complex legal and regulatory environments and foster ethical cultures. LRN's combination of practical tools, education, and strategic advice helps companies translate their values into concrete corporate practices and leadership behaviors that create compliant cultures and sustainable competitive advantage. In partnership with LRN, companies need not choose between living principles and maximizing profits, or between enhancing reputation and growing revenue: all are a product of principled performance. LRN works with organizations in more than 100 countries and has offices in Los Angeles, New York, London, and Mumbai.

For more information, visit www.LRN.com, find us on Twitter @LRN, or call: 800 529 6366 or 646 862 2040.

SOURCE LRN



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