GotEconomy Ethical business and normalization of discomfort

We are new to the market, but we already value how indispensable compliance is in the company as a whole, as we know the importance of the set of disciplines that involve us. In the wake of scandals, organizations declare a renewed corporate focus on ethics and compliance.

Compliance specialists are hired, new policies are developed, and training programs are implemented. Financial sector firms were likely already working on compliance prior to the scandal, while non-financial firms may not have had formal compliance work. A common theme, however, is that a re-focus on compliance will change culture, bad apples will be eradicated, and board and management can move on. With all of our investment in compliance work, costly investigations, legal advice, and technology infrastructure, we need to question whether behavior is actually changing?Will the compliance investment produce the results we want to see? Are we seeing less financial crime and less bribery? Is the compliance work part of the solution, or is it actually part of the problem?

Risks of non-productive compliance programs

In my research, I argue that compliance work can become part of the problem if the more informal aspects of work are neglected. The compliance challenge is to measure the actual result of your work. We can measure actions taken, such as trained individuals, conducted due diligence reports, analyzed red flags, and complex reports of suspected actions. But how do we measure real impact? How do we measure whether behaviors change, decisions are more persistent, and misconduct and criminal acts are reduced?

Do corporate penalties and fines result in more sustainable business practices, or are companies merely a formality while basic behavior remains largely unchanged?Based on my research, personal experience and interaction with the compliance community around the world, the success of an ethics and compliance job appears to be highly person dependent. To evaluate the effectiveness of your work, you need to ask a few questions; Is compliance work focused on filling the letter of the law? Are they the main stakeholders of labor regulators and executive bodies? Is there a maturity to discuss ethical dilemmas and take into account broader stakeholder impact and long-term considerations, or are we focusing on immediate returns and financial impacts?

Embracing difficult discussions

Renewed business practices are highly dependent on individuals, and changed corporate behavior depends on ethics and compliance professionals' standing on the ethical battlefield. During the implementation work, the team questions the effectiveness of their work because the pushback is tangible. The turning point is the realization that ethical struggle and friction are a sign of success and that behavior is actually changing.The challenge, however, is that this success depends on ethics and compliance professionals triumphing in the ethical struggle and not succumbing to the pressures of compromise. Work has an impact, but is highly dependent on the person.

In recent money laundering scandals involving Scandinavian banks, we see obvious red flags, critical threats and internal audit reports that have been ignored. Formal management existed, but lacked the informal elements such as responsible leadership and the courage to really understand these signs. Too often it is considered "just red flags" and even when it walks like a duck, quacks like a duck, and sounds like a duck, key decision makers don't want to see it. In this context, working on compliance depends on the person who dares to ask the obvious question "how can we say that this is not a duck?"

The solution lies with responsible leaders

In addition, greater investment in compliance and the involvement of an army of lawyers and advisers is driving corporate scandals to reopen regulation. New regulatory agencies are created and stringent reporting requirements and formal procedures are required. The final cost of this is borne by the end customer, consumer and taxpayers. Regulation is an essential part of good governance and responsible corporate behavior, but it is not a solution. The solution lies with courageous leaders, whistle-blowers and those who question the status quo. As new regulations are developed, we must keep the purpose of the regulation in mind and make sure that we find ways to measure progress against the ultimate goal.

Formal compliance work is an important means of creating a responsible and ethical culture. Formal compliance work will inform, uncover dilemmas and challenge policymakers. The impact of the work, however, depends on the following procedure. Most often, companies rely on legal opinions, and leaders refrain from having their own opinion. Conduct that may appear legally permissible may become ethically questionable over time. Culture does not arise in a vacuum, but is a consequence of behavior. The tone from above is not what management says, but what they do, what behavior is rewarded, and what kind of leaders are being promoted. Fighting and friction are a normal part of ethical business and a healthy business culture.

Measuring success by discomfort

To ensure compliance does not become part of the problem, giving a false sense of comfort and being a wasted investment, we need to make sure it is not person dependent and discomfort is not seen as a sign of failure. Managing ethical struggles is not the job of one person or team, but the job of all employees and ultimately management and board. One way to measure success in working with Ethics and Compliance is to actually judge how uncomfortable it is. Business ethics will always be inconvenient as we change behavior and move towards more sustainable and transparent business practices. A no-discomfort compliance program likely only works on paper, with little impact on behavior and culture.

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