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Leading with integrity vs. compliance in your company code of ethics

*This blog post was updated on July 14, 2021 to incorporate new data and company services. 

When you hear the word “integrity,” you probably think of values and ethics, or the idea of a “moral compass.” Integrity is ingrained in a person’s entire being—not just exhibited in the way they act around other people. It’s part of a bigger culture and mindset around doing the right thing. 

Now think about the word “compliance.” Chances are, you’re having a different reaction. Compliance doesn’t connote an ingrained sense of right and wrong. Instead, it suggests rules and guidelines for how a person should act around others, not how they should actually be as a person. You probably associate compliance with signing a statement saying you and other employees have read and understood a business code of conduct, as opposed to actually absorbing the organization’s values and taking them to heart. But values and ethics are becoming more and more important to businesses.  

Why it’s important to prioritize values and ethics at work—not just compliance 

Gone are the days of checking boxes to ensure that your employees have done a cursory review of the compliance regulations. Research shows that ethics and values should be at the heart of your brand, not an afterthought or a checkmark on a box.  

  • The Ethics & Compliance Initiative (ECI) found in its Global Business Ethics Survey that in 2020, one in five U.S. employees were in workplaces with a strong ethical culture compared with one in 10 in 2000.  
  • Our 2021 Ethics & Compliance Program Effectiveness Report also found that 82% of the 650 E&C professionals surveyed indicated that their organizations emphasized company values—not just rules and procedures—to motivate employees to do the right thing in difficult circumstances over the past year. 
  • study from Western Governors University found that E&C programs that emphasize integrity inspire individuals to be more committed to their organizations, more aware in an ethical sense and more willing to report problems ethical in nature—ultimately empowering people to create and celebrate a culture of compliance.  

Making your entire culture one that is based on integrity, where employees want to do the right thing because they believe in the mission and share the values of the company, is no overnight task. But a strong first step you can take is evaluating how your code of conduct can further integrate integrity into its policies. 

Code of conduct examples: Leading with integrity vs. compliance 

Literally, integrity means having honesty and moral principles. It is a quality and state of being rather than a behavior. Let’s take a closer look at the difference between an integrity-based code of conduct and a compliance-based code of conduct and examine when it’s appropriate to integrate facets of each. 

  • An integrity-based code of conduct is one that defines an organization’s guiding values while giving employees the leeway to interpret and define how they will internalize these values and behave according to their own standards of ethics. 
  • compliance-based code of conduct tends to be more restrictive and clearly defined than an integrity-based policy. It evolves from government laws and business regulations and constitutes a set of rules to which all employees must adhere concerning a wide range of areas including criminal activity, interactions among and between employees and clients, dealings with other businesses, and more. It also outlines punishments for violating the code of ethics. 

Famously, Nordstrom hands out an employee handbook to new hires containing a single rule: “Use best judgment in all situations. There will be no additional rules.” This is an example of an integrity-based code of conduct: it acknowledges an overarching guiding value and asks employees to act accordingly based on their individual moral compasses. (It’s important to note, however, that while Nordstrom does pass out this extremely brief card, it also has a more extensive policy with a lengthier set of rules and guidelines.) 

By contrast, a compliance-based code of conduct example is Starbucks’ Standards of Business Conduct. In this policy, Starbucks outlines specific behaviors that are expected of employees in sub-sections including “How We Treat One Another,” “How We Treat Our Customers,” “Diversity,” and more. These sub-sections include questions and answers with hypothetical scenarios, such as sharing and reporting inappropriate jokes with colleagues, and concrete steps employees should take to address them. 

A group of ethics and compliance professionals discuss how to improve their code of conduct.

Pros of an integrity-based code of conduct 

  • Integrity is essential to establishing a culture of ethics. Many businesses recognize that without integrity, there is a lack of structure, cooperation, social responsibility, and trust. These values are central to achieving employee satisfaction and, ultimately, brand success. 
  • An integrity-based code of conduct affords employees flexibility. With an integrity-based code of  conduct, it is up to each employee to interpret how they should carry themselves and behave as a representative of the organization. Given the many different personalities and perspectives on what constitutes ethical behavior, this can be a positive step, enabling each individual to consider her own values and how she will act in a way that is ethical for her. Furthermore, a lack of rigidity can mean a more positive culture overall.  

Cons of an integrity-based code of conduct 

  • Flexibility does not always generate positive results. With each employee having an individual interpretation of the organization’s expectations for conduct, it can be difficult to get everyone on the same page. After all, one person’s moral compass may not be identical to another’s. Actions and behaviors may end up in murky territory and create conflict with no clear outline for how employees should conduct themselves. 
  • A lack of clear rules can present obstacles when wrongdoing occurs. An employee makes a comment that another interprets as hurtful or suggestive. A manager engages in a transaction with a client that puts the company in jeopardy. When there are no explicit rules and employees are expected to follow their own code of conduct, what happens when wrongdoing does occur? This is another downside of an integrity-based code of conduct. How can companies enforce punishments when they have not established what even constitutes wrongdoing or inappropriate behavior? It can be very easy for an employee to say, “I didn’t know I was doing anything wrong.” 

Pros of a compliance-based code of conduct 

  • Expectations of employees are clear. Compliance-based codes of conduct generally offer clear guidelines and examples of what is expected of employees, as well as behaviors and actions that will not be tolerated. If an employee has a question such as, “Can I post this on social media?” she can consult the company policy and find a clear answer. 
  • Procedures are in place for enforcing rules. This also means that employees know exactly what to expect if they violate the terms of the company policy. The rules are obvious, and the consequences of failing to follow the policy are clear as well.  

Cons of a compliance-based code of conduct 

  • There may be too many rules for employees to remember and internalize. Because there are often numerous rules in a compliance-based culture, it stands to reason that no employee will remember every single one. This means that while employees are signing off that they have read the policy, it’s unlikely that they’re actually internalizing the meaning or remembering everything they can and can’t do. 
  • The rigid structure can negatively impact company culture. A company that searches for wrongdoers and rule-breakers sends a negative message to its employees. Rather than promoting a culture of trust, the compliance-based model suggests that the organization expects employees to fail and diminishes morale.  

The key takeaway 

Ultimately, a successful organization that upholds the value of integrity will combine both of these approaches in establishing its code of conduct. Employees should understand what is expected of them while also recognizing the overall mission and wanting to support it. In practice, this might involve establishing several— but not an overwhelming number of—overarching ground rules and examples of different scenarios in which employees might find themselves, while still keeping the overall tone positive and emphasizing the values. 

Integrity matters to your brand, people, and mission. To learn more about how you can build a company culture where people want to do the right thing, starting with your code of conduct, get in touch with a member of LRN’s Advisory team. We’ll help you leverage your organizational values to empower employees to think and act ethically no matter where they are—not just because they’ve acknowledged your compliance policy, but because these values are ingrained in the heart of your organization.