How confident are you that your ethics and compliance program is helping your organization navigate today’s risks? Economic uncertainty, geopolitical conflict, supply chain disruption, stakeholder activism, and increased scrutiny by government regulators present significant challenges for the road ahead. But new data from LRN’s 2023 Ethics & Compliance Program Effectiveness Report shows that program effectiveness reinforces corporate resilience in challenging times.
Based on a survey of nearly 1,860 ethics and compliance professionals at companies and organizations worldwide—one of the largest surveys of its kind—this annual report aims to help businesses:
- Access important benchmarks to evaluate and enhance their own compliance programs.
- Learn what worked, what needs improvement, and why some E&C programs excelled while others did not.
- Answer a critical question posed by government regulators: Does their compliance program work in practice, not just on paper?
This year’s report determines the critical differentiators that make some E&C programs more effective than others. These differences—and the best practices embraced by high-performing programs—are even more critical to understand than before. Let’s dig into eight key insights from the report (which you can read in full here) and what they mean for improving ethics and compliance program effectiveness in 2023.
Ethical culture is getting stronger across compliance programs
Ethics and compliance programs emerged from the COVID-19 pandemic with strengthened ethical culture. According the report, 85% of respondents stated that their ethical culture is stronger as a result of their experiences meeting challenges over the past year. Even more reported that ethics and compliance considerations were taken into account in meeting these challenges. And 84% reported that their organizations relied upon values, rather than rules, to motivate employees to do the right thing.
Ethical leadership matters to compliance program effectiveness
Tone at the top is always a critical factor in the success of any E&C program, but managers are the “first responders” when it comes to incorporating ethics into the workplace. More than half of the report’s respondents gave their executives and managers high marks for taking ethical considerations into account in business decisions, managing risk, and balancing employee needs with business goals and priorities.
The need for good data and analytics has skyrocketed for E&C programs
Ongoing evaluation via operational data and analytics, particularly in light of changing risks, is a key component of improving program effectiveness and emphasized frequently by regulators. The 2023 report found that use of employee surveys, engagement with ethics and compliance resources, root cause analysis, and other metrics to assess program effectiveness increased by one-third over LRN’s 2022 report results, highlighting the importance of continuous review and improvement.
Effective E&C programs influence business outcomes
On the whole, effective ethics and compliance programs are impactful when it matters. Encouragingly, over half of the report’s respondents stated that E&C factors and risks led to their organization substantially modifying or abandoning a business initiative. And high-performing E&C programs were 30% or more likely than those ranked as less effective to impact important business decisions, relevance, and continuous evaluation and improvement.
Engagement with E&C improves when programs keep things simple and accessible
Ongoing enhancements designed to improve program impact with employees are a defining difference between high-performing and less-effective E&C programs. More than half of high-performing ethics and compliance programs improved their engagement with employees using interactive codes of conduct, improved and more flexible training, and simplified policies.
Employee ethics are a greater factor in professional advancement
Rewarding and recognizing good ethical behavior continues to grow in importance for regulators, even cited recently by the Department of Justice in its September 2022 policy on corporate criminal prosecution. And companies are following suit. According to the 2023 report, more and more organizations—over 60% of those surveyed—have formal requirements that executives’ and employees’ ethical behavior is taken into account in performance evaluations, promotion, bonus awards, and hiring for key control functions.
There is also growing emphasis on consequences of ethical misconduct
In a similar vein, regulators are also stressing the importance of punishing ethical misconduct. In announcing the DOJ’s September 2022 policy, Deputy Attorney General Lisa Monaco stated:
“Going forward, when prosecutors evaluate the strength of a company’s compliance program, they will consider whether its compensation systems reward compliance and impose financial sanctions on employees, executives, or directors whose direct or supervisory actions or omissions contributed to criminal conduct. They will evaluate what companies say and what they do, including whether, after learning of misconduct, a company actually claws back compensation or otherwise imposes financial penalties.”
LRN’s report found that 56% of all respondents stated that their organization’s policies provided for clawback of bonuses, incentives, and compensation in the event of misconduct—an area emphasized by regulators and a “must have” best practice.
Inadequate internal systems are the biggest obstacle to program effectiveness worldwide
Ethics and compliance programs worldwide are hitting a wall when it comes to improving their reach, employee engagement, and use of data metrics. In order to meet the challenges of remote and hybrid work, platforms need to be multi-functional to help E&C teams do their work efficiently, particularly in light of the staff shortages and budget constraints (also cited above).
Susan Divers, director of thought leadership and best practices at LRN and the lead author of the report, noted that using online platforms improves E&C program efficiency and can organize important data metrics more effectively. “Investing in a multifunctional, data-friendly platform is essential to meet the challenge of remote workers, regulators’ emphasis on data metrics, and the need to be proactive in identifying red flags,” she explained. “It also enhances the E&C team’s productivity and reach.”
The key takeaway
These insights and others from the 2023 Ethics & Compliance Program Effectiveness report validate a central lesson from LRN’s ongoing research: that the most effective programs—those taking a values-based approach to governance, culture, and leadership—correlate strongly with reduced risk and better business outcomes. To learn more about how you can reinforce your program—and organizational—resilience, download the report today.