Can You Develop A Culture Of Compliance?

I. Introduction

The Department of Justice and most global regulators encourage companies to invest in developing a “culture of compliance,” but should that be a CEO's sole or primary focus when developing a company culture? It is a given for company CEOs—the ultimate culture carriers for their businesses—that employees should follow the law and act ethically. But businesses are about so much more than compliance. As a CEO, the culture you want to drive or maintain is likely one that inspires creative thinking or test-and-learn innovation to keep competitors on their toes, while also encouraging calculated risk-taking within certain limits and acting ethically.

The process to embed a desirable culture is the same regardless of the specific cultural focus. We believe achieving a strong culture is dependent on aligning the business model, operating model, organizational structure, and people strategy to the overall business strategy.

II. What is an organization's culture?

One of the biggest challenges in transforming an organization's culture is its reputation as a nebulous and “soft” concept. Too often, leaders look for quick, shallow fixes like rebranding internal slogans, pasting values on the wall, and launching check-the-box employee engagement surveys.

Clear in the  working definition put forth by late social psychologist Edgar Schein, culture is necessarily dynamic and inherently complex. “Organizational culture,”  said Schein, “is the pattern of basic assumptions that a given group has invented, discovered, or developed in learning to cope with its problems of external adaptation and internal integration, and that have worked well enough to be considered valid, and, therefore, to be taught to new members as the correct way to perceive, think, and feel in relation to those problems.”

Corporate culture refers to ways of thinking and behaving to manage various day-to-day pressures. To put it bluntly, “it's the way we do things around here!” Culture is driven by behavior, and behavior is driven by culture.

III. Should you change your organization's culture?

You can actively shape or re-shape your organization's culture, but this is not an exercise for the faint-hearted. It requires absolute clarity on objectives and trade-offs, the right people empowered with the right authority, enough pain tolerance to make dramatic but necessary changes, and a belief that those changes will ultimately move the needle.

Most importantly, the CEO must want it more than anyone else. If the CEO is not ready to drive change, then the business is not ready.

Below we outline the three key steps to begin a culture change.

A. Step 1: Look in the mirror

It begins and ends with the CEO. CEOs need to be aware of the behaviors they exhibit and hold themselves as accountable as they hold others. They also need to identify the point at which their leadership strengths become weaknesses and understand how others in the organization perceive these aspects.

For example, a CEO may reference an “open-door policy,” but are colleagues using that “open door” to circumvent formal processes? The perceived strength of having an “open-door policy” can thus turn into a weakness others may notice—processes apply to others, but not the CEO.

When we see executives grappling with high turnover, dysfunction in a particular department, or safety concerns at a manufacturing site, we typically find that the issue stems from a deeper, systemic problem. This is further exacerbated when leaders say one thing and employees experience another—for example, saying “we put employees first” while subjecting employees to increased performance pressure, fewer resources, and cumbersome processes to navigate.

When employees are asked to behave in a way that is structurally unsupported by the business, the result can be a disengaged or frustrated workforce—or in some cases, toxic or unethical behavior. Even if a Chief Compliance Officer is appointed to implement a rigorous compliance program, if the business's incentive structure and promotion cycles signal to employees that bending the rules is generally tolerated, changes won't take hold. Actions speak louder than words.

Try to understand the underlying forces that drive employee behavior in your organization. You can do this through targeted interviews with a representative sample across and down the organization, or with focus groups and surveys. It is important to reach beyond employees sitting in the corporate functions to understand how they think and behave throughout the business. Only then can you identify problematic behavior and begin to untangle symptoms from root cause.

In Appendix A, we outline key questions to ask when seeking to understand how employees think and act behind closed doors.

B. Step 2: Define your ideal culture and understand the trade-offs

In Appendix B, we outline key questions to ask when defining your ideal future cultural state. You may already have clear answers to these questions. If so, you may need to ask whether leaders throughout the organization are aligned with this vision and whether they are ready and willing to enact the changes necessary to achieve this ideal future state.

What if you are under regulatory scrutiny – how does that impact your company's strategic objectives going forward? Usually after regulatory or unethical actions have occurred, and when the fines and litigation costs begin to pile up, is when many leaders realize it is in their best interest to invest in fostering a “culture of compliance.” Proper compliance and risk management practices and related documentation are critical hygiene factors that must be met, the absence of which leaves room for highly destructive and toxic practices that can erode your business. Leaders must strike the balance between being ‘bold' and being ‘responsible,' and embedding that into day-to-day systems and processes.

As we noted in our previous article,  Determining Whether Your Corporate Compliance Program Is Good Enough, “good enough” as a goal may be better than “great” for many organizations, as the pursuit of perfection can stifle realistic progress. Said another way, perfection should not be the enemy of good (enough). Instead of pushing for an immediate shift to a “culture of compliance,” identify your non-negotiables in terms of risk and compliance and set clear boundaries to protect them. Then evaluate your current organization to see where you may be falling short and continue to build and make progress.

C. Step 3: Develop a plan and stick to it.

In Step 1 you uncovered practices within your business and in Step 2 you outlined your strategic priorities and trade-offs. Now, you should re-evaluate what you said you wanted to achieve and outline the forces within your business that are preventing it. This needs to be spearheaded by the CEO given the difficult decisions to be made.

We mentioned earlier that corporate culture refers to ways of thinking and behaving to manage various day-to-day pressures. Aligning your business model, operating model, organizational structure, and people strategy to your overall business strategy allows your company to drive its desired culture, re-enforcing the right behaviors and dealing head-on with the wrong ones. But ultimately, a highly productive corporate culture consists of employees that choose to behave in an aligned way.

Even with an excellent plan and near-perfect execution, cultures must be actively managed, and that work is never complete. For example, if a certain behavior resulted in disciplinary action in 2015, but in 2020 the same behavior is rewarded, no amount of strategic communication can counteract the signal this gives employees.

IV. Conclusion

So, can you develop a culture of compliance? The answer is yes, but a company's culture is infinitely more complex than compliance alone. Only through concerted effort can a company take hold and shape the culture it desires, including one of acting ethically.

Actions speak louder than words when evaluating and re-defining your corporate culture. Find the actions that may be inhibiting your company's culture from reaching its fullest potential. This requires looking beyond what leaders are saying and recognizing what they are doing. We know from our experience that shaping and supporting a strong culture is challenging in the best of times. Transforming and rebuilding a toxic or broken culture after reputational damage is extraordinarily difficult.

An ounce of prevention is worth a pound of cure.

Appendix A

Key questions to ask when seeking to understand what drives employee behavior behind closed doors in your organization:

1. What direction have you set with your employees and how have you set up your business to support that?
2. Where are structures or processes at odds with that direction?
3. Is there a disconnect between what we say and what we do?
4. What direction are we pushing the business and at what cost? What are we willing to give up to get there?
5. Could our incentive structure tempt employees to take advantage of certain customers or engage in unethical conduct?
6. How do we reward risk-taking? How is failure handled? Do we have measures in place to allow for a certain degree of failure?
7. Who holds true decision-making authority? Is it often undermined? Why?
8. What kinds of behaviors get people promoted? What is the response if high performers cross an ethical line?
9. What KPIs (Key Performance Indicators) do we use to track and incentivize performance? What are some potential unintended consequences of rewarding people based on these metrics?
10. What sort of talent do we attract? How much are we investing in their development? Do they have a clear path at this company?
11. What keeps people here? Why do people leave?

Appendix B

Key questions to ask when defining your ideal future company culture:

1. What is your vision for the business in 3 years, 5 years, and 7 years out?
2. How are you planning to achieve that vision?
3. What are your strategic objectives and what will the future value drivers be for your business?
4. How far in that direction are you willing to go and at what cost?
5. What are the trade-offs of moving in that direction? For example, if you decide that decision-making authority must be held as close to the customer as possible in a customer-driven business, are you willing to give up the oversight and control over decision-making?
6. Is your future state model in line with your risk appetite?
7. What kinds of behaviors are needed from employees to get you there? What kinds of behaviors will hold the business back?

Originally published by Program on Corporate Compliance and Enforcement.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.