We all know the importance of promoting a culture of compliance and ethics. The benefits of an ethical culture are substantial and worth every penny of investment in creating and promoting such a culture. We do not need to spend time justifying why an ethical culture is important to company financial success – it is critical for corporate sustainability and profitability.
Not every company has a culture of compliance and ethics. In fact, many companies do not have a positive culture.
What do those companies look like? Or to put it another way, what are some of the signs of a weak culture of compliance and ethics? I can name a few.
Obsession with Quarterly Financial Performance – Demand by corporate stakeholders for positive financial performance has become almost instantaneous. No longer are companies managed for long-term results or sustainable results. Companies have to perform each quarter, and if they do not, then something is wrong.
When the Board, the CEO and senior management adopt this credo, look out – obsession with financial performance can easily translate into cutting corners for the “greater good” of a positive quarterly report. “Cutting corners,” however, undermines any hope for a culture of compliance and ethics. Strong financial performance is not antithetical to strong ethical performance. Often, the two can go hand in hand.
Devotion to quarterly financial reports can easily filter to sales staff who each have to meet performance goals. Putting pressure on sales staff can lead to cutting corners on compliance and legal requirements – accurate financial reporting, meeting sales staff, revenue recognition issues and lots of other pitfalls, including bribery and antitrust violations.
Making Excuses for the CEO’s Compliance Commitment – When the Board, senior managers or the Chief Compliance Officer justify a CEO’s failure to explicitly address compliance requirements, the company’s culture is on the rocks. Another manifestation of such excuses is when everyone cites the CEO’s recorded message in support of ethics and compliance (which may have been recorded 24 months ago); the company is running down a dangerous path where financial goals and accomplishments are the be-all and end-all of company success.
Groupthink Denial and Acceptance – We all know this one; it is more than evident, but never explicitly called out. Senior managers will reinforce a denial or an explanation by offering a positive statement that is contrary to fact, but is met with nods of acceptance and even explicit agreements. We have worked at organizations where everyone is tested in a sense – by accepting the group’s explanation and justification for a situation that calls for difficult and uncomfortable resolutions. Groupthink is a dangerous concept because no one person is forced to lie or deny by themselves – in a sense, the lie and the denial becomes a group process that reinforces and supports members of the group from having to face difficult issues.
Lackadaisical, Check-the-Box Attention to Compliance Functions – When the Board, the CEO and senior management appear disinterested when discussing the importance of compliance training, internal investigations, complaint breakdowns and other “mundane” compliance issues, the company’s culture and commitment to compliance is in poor shape. Corporate Boards, CEOs and senior managers enjoy discussing new business opportunities, creative strategies and approaches to increasing company business. Companies with weak cultures visibly become deflated when discussing some of the check-the-box items relating to compliance and ethics. If you see it, you know it. Companies that display this kind of inattention are not committed to ethics and compliance, but are only interested in compliance functions as a way to say – “we did it and now lets move on to more interesting topics.”
Michael Volkov is the CEO of The Volkov Law Group LLC, where he provides compliance, internal investigation and white collar defense services. He can be reached at firstname.lastname@example.org. His practice focuses on white collar defense, corporate compliance, internal investigations, and regulatory enforcement matters. He is a former federal prosecutor with almost 30 years of experience in a variety of government positions and private practice.
Michael maintains a well-known blog: Corruption Crime & Compliance which is frequently cited by anti-corruption professionals and professionals in the compliance industry.Michael has extensive experience representing clients on matters involving the Foreign Corrupt Practices Act, the UK Bribery Act, money laundering, Office of Foreign Asset Control (OFAC), export controls, sanctions and International Traffic in Arms, False Claims Act, Congressional investigations, online gambling and regulatory enforcement issues.