Staff 1.6x likely to do right thing when boards focus on ethics

Employees at organisations with boards that focus on ethics and compliance (E&C) are 1.6x more likely to behave fairly and do the right thing; even if it’s not in their personal best interest, according to a new study.

The latest annual Ethics and Compliance Program Effectiveness report, published by ethics and compliance solutions provider LRN, suggests that company boards that doubled down on E&C in 2020 were more likely to build stronger ethical foundations; better positioning  their organisations to meet future challenges; and deliver outcomes consistent with  society’s elevated expectations for business. The research noted substantial differences between organisations with boards engaged in the area of ethics and compliance compared to those less engaged.

COMPLIANCE IN TIMES OF CRISIS

Surveying nearly 630 ethics, compliance and legal executives and experts at companies and organisations around the world with at least 1,000 employees, LRN researchers looked at three measures of board engagement:

1. Championship: In a time of crisis, did the board actively support and effectively oversee the E&C programme? 
2. Open Communication: Does the board enable open, direct, two-way communication with the E&C function? 
3. Accountability: Does the board play an active role in holding senior executives or high performers accountable for misconduct?   

Notably, findings in the areas of championship and open communication found that 79% of the professionals surveyed agreed that their organisation’s board of directors effectively supported their E&C programme during the Covid-19 crisis. Around 77% of respondents indicated the E&C function has the ability to raise issues or concerns directly to the board of directors.

However, in the critical area of organisational justice, boards need to do a better job of holding senior leaders accountable on the same basis as everyone else in the organisation, 60% reported that, in the past year, their board of directors has taken an active role in ensuring that any misconduct by senior executives or excellent performers is effectively addressed.

LEADERSHIP ACCOUNTABILITY

The research also found that when boards are known to hold leaders accountable for misconduct, 51% of their organisations actually disciplined or terminated an executive or high performer in the past year. In contrast, only 18% of organisations whose boards are less engaged in ensuring accountability took such action in the past year. This nearly-3x magnitude effect illustrates how powerful such signals and focus from boards can be. Ethics and compliance considerations play a larger role in key business decisions when senior executives know they will be held accountable for their behaviour by their boards.

The findings suggest that when boards send clear signals that company leadership must behave ethically without question, those expectations cascade through the organisation and translate into action. The data also supports existing behavioural science research that holds that organisational justice – the perceptions of fairness in treatment of individuals inside an organisation – is critical for effective ethics and compliance programmes.

KEY DRIVERS OF BUSINESS SUCCESS

“We already know that effective ethics and compliance programmes are key drivers of business outcomes,” stated David Greenberg, Special Advisor to LRN and a public company board member. “The pandemic has provided businesses with an unparalleled opportunity to rethink assumptions and chart a better course. Boards have considerable strategic responsibilities. Given the intense regulatory and investor interest in environmental, social, and governance – running concurrently with increased employee activism, pandemic fallout, and the fight for talent – effective boards must understand business and culture.”

There has never been a more effective system to shape and direct behaviour in an organisation than culture. A well-positioned board in this new world of work is one that views the health, sustainability and ethical foundations of its culture as strategic priority, according to the report.

The 2021 Ethics & Compliance Program Effectiveness Report – Leading the Way: How Boards of Directors Can Engage in Ethics and Compliance, examines board engagement on topics of ethics and compliance programmes during a year when the Covid-19 pandemic affected workforce behaviour around the world. Click here for more information.

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