By Frank Ruelas
From Compliance & Ethics Professional, a publication for SCCE members
When we read the phrase “compliance and ethics program,” we sometimes overlook the interesting connection between the words “compliance” and “ethics” and how each contributes to the formation of an organization’s compliance and ethics program (CEP). Sometimes one can spark a lively discussion just by inviting other compliance professionals to describe the differences between compliance and ethics, and how these differences may compliment or potentially be in conflict with one another, as they both impact the overall effectiveness of a CEP. In addition, the fundamental differences between compliance and ethics may present a philosophical challenge for employees in their role of supporting or acting in accordance with the CEP. It is important that a compliance professional understand some of the root causes of these philosophical differences, so as to be in a better position to address or help manage them when they occur.
To establish a frame of reference between compliance and ethics, I introduce two common ideas that are commonly applied to these terms. Compliance is often thought of as referring to the relationship of a CEP and the rules and regulations that apply to the organization. These rules and regulations typically take the form of local, state, and federal laws. Because these rules and regulations apply to other organizations within the same industry, they tend to provide an opportunity for compliance professionals to discuss how their respective organizations are working to satisfy the requirements that these rules and regulations demand.
In contrast is the commonly held thought that ethics relates to the value system that exists within an organization. This value system can be seen as consisting of two subsets. One subset is what many organizations within the same and different industries tend to adopt and promote to their employees and customers. These values often take the form of social responsibility as it relates to how the organization works to be a responsible corporate citizen in the community in which it operates, or how the organization works to protect the environment above and beyond what it must do to meet regulatory requirements.
The second subset of the value system that represents the ethics of an organization is the value system that is generated from within the organization, often attributed to the culture that exists within an organization. This close relationship between an organization’s culture and its value system is what makes this second subset of the values that impact the CEP so unique to each organization.
Therefore we can understand how compliance professionals from two organizations within the same industry may have so much in common on one hand, such as when dealing with the compliance aspects of their respective CEPs, and at the same time are operating in such diverse environments with respect to the ethical aspects of their CEPs.
Stability and consistency
The rules and regulations that apply and impact the compliance aspects of a CEP provide an inherent element of stability to the organization. The laws that provide the basis for the underlying requirements for what an organization must do to operate legally within its industry are often well codified and easily accessible. In addition, because these are based on laws, a compliance professional can monitor legislative activity to identify if new laws are being considered or if changes to current laws are proposed. Just as finalized laws are relatively easy to find, many law-making bodies provide public notices on their activities, which can serve as early signals of potential, impending changes.
Now, although rules and regulations may be readily available and accessible to compliance professionals, this doesn’t necessary mean that all compliance professionals may agree on the meaning of these rules and regulations, and they may also differ on how they will implement mechanisms within their respective organizations to satisfy these rules. However, this variability of how different compliance professionals may respond to these rules and regulations is often a matter of choice or preference that may be driven by factors that are specific to the organization.
Let’s use an example of a regulation that requires that an organization’s workforce must be trained on certain policies and procedures within a reasonable time after joining the organization. As compliance professionals read this and decide what represents “within a reasonable time,” it is likely different conclusions will be drawn as to what represents a reasonable time. For some organizations, it may be within a certain number of days following when an individual has started working there. For other organizations, the decision may be that this training must occur on the first day that the new member of the workforce presents for work.
So, although the rules and regulations, which provide the basis for the compliance aspects of a CEP, may be “black and white” in terms of how they are available or may be made known to everyone, how they are applied may easily introduce shades of gray.
Inconsistency and instability
Unlike rules and regulations, value systems that are used to support the ethics-related aspects of a CEP are much more variable in their nature. The challenge of incorporating an organization’s value system into its CEP is further compounded by how the organization’s value system may change. Some of these changes to the value system may occur over time as the leadership team evolves in its role within the organization. Conversely, there can be sudden changes to an organization’s value system if the leadership team’s composition is suddenly altered, such as when there is a change in a senior position, for example, a chief executive officer.
Value systems are also impacted by the challenge of trying to define or decide what is “right” or what is “wrong” with respect to the values that the organization wishes to reinforce. For the most part, the compliance program will feed into the ethics portion of the CEP in helping to define what is right and wrong by attempting to align decisions with meeting the requirements of rules and regulations. However, values by their nature are derived by subjective processes and conditions such as those that are the result of an organization’s culture. This is further complicated by what contributes to the formation of a company’s culture, which would include its standing within the industry, the effectiveness of its leadership team, and market conditions or competitive pressures that impact business decision making.
Managing philosophical differences
It is not uncommon for compliance professionals to encounter a situation where individuals take differing positions on a common issue, despite the fact that they are all operating within the framework of a common or the same CEP. This is primarily attributed to whether these individuals adopt either a compliance focus or an ethics focus in their decision making. What makes these situations so challenging is that those involved often have very strong feelings on why their actions are “right.” The compliance group may take the position that their position is in alignment with rules and regulations, while the ethics-focused group may dismiss what is required by the law and supplant it by what is recognized as consistent with the organization’s culture and value system, which therefore make their decision “right.”
Therefore, the ability of a compliance professional to relate to, understand, and recognize why employees operating under the same CEP may have such differing positions is a key skill to have and develop. By being able to detect and manage the philosophical differences of employees, a compliance professional can help reconcile their differences by showing how the CEP is effectively supported by those who genuinely feel they are applying it in good faith.
Unification through diversification
When trying to reconcile differences of opinion between employees operating under the same CEP, it is critical to remember that employees are often very committed to the ideology that is driving their perspective on what the organization’s CEP means to them.
To try to convince an individual that their interpretation of the CEP needs to be adjusted to bring it into alignment with that of a coworker is often a losing proposition. It may also result in frustration and even animosity between the parties. Additionally, it may cause people to doubt the validity of the CEP and its effectiveness as a framework in providing guidance to those that are to support it. Another outcome could be that people perceive the compliance professional as having a bias or prejudice between compliance and ethics, which may not exist. Therefore, steps should be taken to legitimately explain and exhibit to people how differences of opinion on the application of a CEP are not only expected, but are a normal occurrence that is welcomed. It allows for meaningful discussion on what the CEP means to those within the organization, while also acknowledging that compliance and ethics, though closely related, may provoke sharp differences of opinion.
Rather than trying to change the positions of individuals who may have differing opinions on issues or questions related to the organization’s CEP, a more effective approach is to show how these differing positions may represent a bona fide attempt to support the CEP. In this manner, people of differing opinions are not viewed as right and others as wrong. In fact, this approach may show how each position, though different from one another, may either be right or wrong. As a result, people have the opportunity to develop a clearer understanding of their interpretation and support of the CEP, without the distraction of also having to prove to those with differing views as to who is right or wrong.
In the end, compliance professionals can serve as powerful agents of the organization by helping people understand how both compliance and ethics do indeed work together to help an organization meet its legal obligations, while also promoting the organization’s value system. It is through the effective management of these two elements, compliance and ethics, and how they work in combination that results in an organization developing and maintaining an effective compliance and ethics program.
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