The Purpose of a Compliance Program: To Prevent and Detect
I do not think there is much disagreement on the basic purpose of an ethics and compliance program. After all, one of the primary sources for compliance programs continues to be the United States Sentencing Guidelines which very clearly affirm that stated purpose of a corporate compliance program.
To play devil’s advocate for a minute, let’s consider the following: the United States Sentencing Guidelines are just what they say – guidelines for criminal sentencing of a corporation. It is not the be all and end all of corporate compliance guidance.
And where does the importance of an ethical culture fit in? Well, an ethical culture is perhaps the best control that a company can implement as a way to “prevent and detect” compliance.
I do not intend to repeat myself (but remember that is precisely what I am about to do) but companies with ethical cultures have lower rates of employee misconduct, lower rates of employee turnover, increased productivity and overall improved financial performance. Hopefully, no one will dispute that point (although there may be disagreement as to how to define an “ethical culture”).
While I agree then with the import of a compliance program purpose – “to prevent and detect” – I believe the description is a little but narrowing, perhaps from just a symbolic sense. Although technically, a compliance program dedicated to “prevent and detect” misconduct should, and must, fully embrace the value of an ethical culture, the purpose of a compliance program should reinforce the two critical elements of a successful compliance program – an ethical culture and effective compliance controls.
This sounds nit-picky but symbols, titles and language can matter when it comes to inspiring and leading corporate organizations. We always look to messaging and the need to motivate employees, and promoting the value of a company’s culture and its ethical principles is an important aspect of this process.
A focus on ethical culture should not in any way diminish the importance of a company’s controls – the design and implementation of such controls is a key function of a compliance program. When corporate policies are viewed as nuisances, or something to be circumvented, this can undermine corporate culture and create risks that employees will ignore other controls, sometime even more important controls.
I guess this all goes back to a key aspect of any corporate compliance program – a company’s culture and its compliance controls are mutually reinforcing. When you promote a company’s culture, you reinforce the importance of compliance with controls, and vice versa, when you enforce the company’s controls, you reinforce the company’s culture. No one disagrees with this basic principle of interdependency.
Going back to our main point here – to prevent corporate misconduct is a proactive perspective, one that forces CCOs to think creatively and communicate important steps to take to instill and promote a corporate culture premised on the company’s values.
That is not in any way intended to diminish the importance of detecting misconduct – just think of it in this basic way: If employees do not feel comfortable raising concerns about corporate activities, there is no way a company can ever detect misconduct or issues that need to be addressed. No compliance program can ever function properly without the input and observations of employees who feel free to raise concerns and trust the corporate reporting system to address issues they raise.
Detection also serves the purpose of Prevention. In addition the culture, controls and even punishment in my opinion have the purpose to prevent future non-compliance. Anything else is side benefits. So the ultimate words I believe is Prevention alone.
Another point I want to make is to challenge the assumption that good compliance program leads to good financial results. I am not sure that any research would be able to establish a cause-effect connection. Maximum – the correlation. At worst case scenario financial success can be the cause and good compliance program – an effect.
P.S. I may be wrong as I did not the studies deep enough.