Compliance by Fear: An “Old” Mindset
Compliance and ethical culture mandates have experienced a significant transformation. From the early days of compliance, organizations pigeon-holed compliance into a role akin to “law enforcement.”
I will always recall meeting with a client years ago and when the CCO walked into the room, a senior executive exclaimed, “Uh, oh, the sheriff is in town.” That was not a good sign.
Compliance by fear is not an effective strategy for promoting the purposes of a compliance program – to enhance a company’s ethical culture and compliance performance, and to prevent and deter misconduct. A proper calculation of risks does not require a message of fear of enforcement or other consequences. Risks have to be assessed accurately and without emotion.
Fear-based compliance undermines this process in many respects. Rational decision-making requires weighing benefits and risks. If fear dominates this process, the calculation can often be skewed to misrepresent the relative issues. Fear-based compliance, by definition, is ineffective because it omits a key strategy for effective ethics and compliance programs – inspiration and commitment to ethical conduct.
As I often say (and repeat myself), a company’s best control is its ethical culture. No compliance program, no matter how good, can monitor the activities of all of its employees. CCOs depend on employees to regulate their own behavior and to report others who may engage in misconduct. At ethical companies, employees who report other employees do so out of a sense of pride to preserve and protect the company from harm.
Employees who work at ethical companies are committed to the organization’s mission and protecting the company from misconduct and harm. This reflects the employee’s own commitment to ethical behavior and to the overall mission and operation of the organization. It is far better to inspire ethical conduct rather than coerce employees to avoid misconduct through fear-based consequences. Positive messaging often works better than a fear-based communications strategy.
This position is not absolute. Messaging around compliance has to acknowledge the consequences of misconduct and potential harm to the company. My argument is that a singular fear-based message is not as effective as a more robust communications strategy that incorporate positive benefits to ethical behavior and resulting reduction in risks of government enforcement. The potential harm to an organization’s reputation and financial consequences should be included in this messaging strategy.
At the center of this effort is the perception and role of the CCO. A fear-based CCO will be perceived only for enforcement and not as an inspirational leader or a value-add to the business. Such a perception can undermine not only the effectiveness of a compliance program but burden overall business performance and employee morale. CCOs should be mindful of this possibility when messaging around ethics and compliance and make an effort to inspire ethical conduct, reward employees that adhere to ethical behaviors and motivate employee commitment to the organization’s values, ethical principles and sustainable performance.