In the business world, it’s common to hear the word ethics accompanied by the word compliance and vice versa. Business people sometimes incorrectly use the terms interchangeably. Ethics and compliance have different meanings; yet, they often go hand in hand. Corporations have different ways of addressing ethics and compliance issues within their companies.
Some corporations enlist the help of a Chief Ethics Officer or Chief Compliance Officer. Other corporations combine the two titles and give the position the title Chief Ethics and Compliance Officer. Regardless of what companies label the position, most corporate boards know that ethics and compliance have a strong influence on corporate culture. Ethical culture can lead to corporate success or failure. Perhaps what is a bit more challenging is how to bring a strong ethics and compliance program into the workplace in order to prevent misconduct.
Compliance has a surprisingly simple definition. It merely means following laws, rules or policies to the letter of the law. The government requires corporate compliance, and it’s up to boards and corporate directors to get all employees to comply. Compliance is a reactive word that forces people to make a conscious choice.
Ethics means doing what is right regardless of what the law says. It’s also a conscious choice that is a personal one. It’s entirely possible to be ethical without being compliant. Ethics is proactive, rather than reactive as compliance is. Our personal values system, including our character, values and core principles, guide us when we make decisions. Most people feel a sense of deep personal satisfaction when they make ethical actions and decisions.
Impact of Ethics on Corporate Culture
In a corporate setting, strong ethics leads to improving employee morale. Corporations with strong ethics and compliance programs discourage employee misconduct and encourage employees to report misconduct by others. Improving a corporation’s ethical culture requires planning, commitment and follow-through. Doing so has several benefits.
Strengthening the corporate ethical culture promotes feelings of self-worth across the company. It creates an environment where managers and employees want to come to work. The net result of a strong corporate ethical culture combined with integrity-filled employees is a profitable company with strong prospects for operational sustainability.
While developing a strong ethical culture takes a strong commitment of time, it has minimal impact on the corporate budget.
Cost of Creating an Ethical Corporate Culture
The best news about having an ethics and compliance program and strengthening workplace ethics is that it costs very little in comparison to the benefits that corporations receive from it.
Creating a robust ethics and compliance program won’t drain or strain the corporate budget and doesn’t require significant resources for implementation.
Ethics and Compliance and Preventing Misconduct in the Workplace
Now that the differences between ethics and compliance are clear, the question becomes how corporations can use the relationship between them to develop a strong ethics and compliance program to prevent misconduct in the workplace.
It’s obviously not possible to get into each employee’s head and force them to make the right decisions and do the right thing. Nonetheless, it is possible for companies to create an environment that resounds of strong ethics and legal compliance.
Donald Cressey was a leading penologist, sociologist and criminologist. He spent his career educating others about the issues that lead to misconduct. Cressey created a well-known Venn diagram that shows how the overlap between opportunity, rationalization and pressure creates the perfect storm for fraud.
Compliance Policies Discourage Opportunities for Rule-Breaking
Rules are generally designed to discourage opportunities for employees to violate the law. In viewing Cressey’s theory on fraud, we can easily equate opportunity with compliance.
Without question, all companies should have a strong and effective compliance program. Ethics and compliance departments must work to combine rules with corporate systems and processes that reduce opportunities for employee misconduct.
Much of the focus for compliance relies on instruction and the corporation’s definition of appropriate procedures. Ethics and compliance teams should also be examining business systems, internal controls and approval procedures that are designed to prevent misconduct.
Some specific ways that corporations manage compliance is by setting limits on gift-giving and by tracking employee travel expenses, as well as other spending and reimbursement.
Ethics Policies Promote the Rationalization for Values and Integrity
Cressey’s Venn diagram equates the idea of rationalization to ethics. Corporations that teach their employees about ethical behavior find that most people can learn it and accept it.
Companies can train their employees to uphold their companies’ values by starting and continuing messages about ethics, integrity and doing the right thing. Training and messaging form a large part of promoting strong ethics and compliance. The other part of the process is to hold employees accountable when they aren’t behaving in ethical ways.
The Effect of Pressure on Ethics and Compliance
Cressey also points out that pressure has a negative effect on ethics and compliance, particularly when companies or managers place pressure on employees to perform without placing an emphasis on integrity. Employees who feel pressured to take certain actions may be inclined to take unethical shortcuts unless instructions come with reminders about ethics and compliance policies.
Final Thoughts on the Differences Between Ethics and Compliance
Corporations are wise to understand the distinct differences between ethics and compliance, and how they relate to each other. One of the main goals of ethics and compliance departments should be to make sure that they are clearly and continually communicating every aspect of the corporate culture to their employees. The other main goal is to make sure they’re doing all they can to reinforce the ethical culture in every aspect of the business.
Last, and most important, ethics and compliance departments must recognize the role that pressure plays in how employees respond to ethics and compliance policies.