Establishing A Global Culture Of Compliance
Many corporate leaders view their compliance organization as a separate business function rather than central to their company’s mission. However, the spate of well-publicized instances of corporate wrongdoing, from Volkswagen’s emissions scandal to Uber’s leadership and software missteps, make clear that ethical considerations must underpin every decision that a multinational makes, regardless of its size or industry.
While compliance costs can be substantial, the cost of noncompliance is even higher. In addition to the fees and fines – businesses paid nearly $26 billion in compliance-related fines globally in 2017 – customers are increasingly concerned about the reputations of the companies with whom they choose to spend their money.
Of the respondents to Accenture’s Global Consumer Pulse survey, 66 percent report favoring brands that are “transparent” about the source of their materials and how they treat employees, while 62 percent of respondents are concerned about a brand’s ethical values.
Consumers are also primed to take action. Two-thirds of survey respondents believe that refusing to buy from brands or criticizing them on social media can make a difference in how companies act.
Business reputation has real-world consequences. According to the Harris Poll’s Reputation Quotient Survey®, which tracks consumer reputation ratings for the 100 most visible companies in the U.S., Volkswagen Group’s emissions scandal caused the company to plummet in the eyes of U.S. consumers.
The company declined from a “very good” score of 75.21 in 2015 to a “very poor” score of 54.75 in 2016. The scandal cost the company more than $30 billion in direct fines, penalties and settlements. In the wake of the scandal, the automaker’s market share fell by 0.15 percent and the company lost nearly $17 billion in market value in a matter of days.
While all companies should have a robust program in place, compliance depends on the behavior of individual employees. The most successful companies have an established culture that celebrates positive contributions and encourages ethical behavior on a day-to-day basis. Instead of trying to guess where individuals may run afoul of local or national regulations, companies should empower rank-and-file employees, as well as management, to make sound judgments in their everyday work. To do so, companies may consider adopting some of the following practices:
1. Ensure that the company’s principles are actionable and clear
From a mission statement to marketing materials, company leadership should telegraph a company’s core principles and illustrate how they affect day-to-day business decisions.
Consider 3M, which has been nominated as one of the world’s most ethical companies for six years in a row by Ethisphere. The company has established a six-principle Code of Conduct that governs its operations around the world.
3M makes its Code of Conduct easy for employees to adopt in their day-to-day work. For example, its third principle, “Be Fair,” encourages employees to “play by the rules, whether working with government, customers or suppliers.” The rule is broadly applicable, allows employees to exercise discretion and still establishes clear examples of right and wrong.
3M’s leadership team also sets an example for employees to follow, even when doing so has short-term negative consequences. In 2009 and 2019, the company voluntarily reported potential violations of anticorruption laws by its business groups. The proactivity has paid off: the former instance was resolved without an enforcement action by US authorities, while the latter caused only a minor dip in stock price and its resolution is outstanding.
2. Reward and reinforce ethical behavior at all levels
Business leaders recognize that the tone they set “from the top” is important in establishing a culture of compliance, but many underestimate the influence that employees lower in the organizational hierarchy have in setting the day-to-day tone of the company, especially in satellite offices.
Much has been made of the bystander effect, in which individuals are less likely to help a person in need if they’re in the presence of others rather than alone. In business settings, this diffusion of responsibility has two parts: first, if others are present, employees are likely to feel that someone else will intervene. Second, if no one intervenes, the group implicitly labels the behavior as acceptable. Employees may also fear retaliation for reporting an issue if it appears acceptable to their peers.
Most education stops at helping employees understand the “rules” of compliance to ensure that they don’t cross a line that they weren’t aware of. While this satisfies federally mandated training, companies should look to reinforce ethical norms and reward employees who set a positive example.
For example, studies focused on sexual harassment have shown that bystander training significantly improved the likelihood that individuals took action after witnessing improper behavior. Few companies, however, offer such training.
Leaders can also take steps to recognize employees who behave in an exemplary fashion. While much is made of ethical or compliance violations, managers can also proactively focus on employees who embody the company’s mission statement or have made sound ethical choices.
3. Hold all employees, regardless of location, to the same high standards
Establishing an ethical business culture is difficult. Often, the culture of satellite offices is more likely to reflect the norms and standards of the community in which they are located, rather than those of the corporate headquarters. However, most industries have best practices and companies would do well to meet those practices, regardless of their locale.
For multinationals, it is far too expensive and problematic to implement different approaches to compliance and ethical conduct in different countries based on cultural mores local regulations.
In many instances, a best practice is for multinationals to identify the most conservative standard in the countries in which it operates and hold the entire company to that standard. Even though this approach may be more conservative than necessary in some locations, a shared approach will be simpler to understand and apply. Consistency and standardization across the entire company is vital for long-term success.