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Harry Cassin
Publisher and Editor

Andy Spalding
Senior Editor

Jessica Tillipman
Senior Editor

Bill Steinman
Senior Editor

Richard L. Cassin
Editor at Large

Elizabeth K. Spahn
Editor Emeritus

Cody Worthington
Contributing Editor

Julie DiMauro
Contributing Editor

Thomas Fox
Contributing Editor

Marc Alain Bohn
Contributing Editor

Bill Waite
Contributing Editor

Shruti J. Shah
Contributing Editor

Russell A. Stamets
Contributing Editor

Richard Bistrong
Contributing Editor

Eric Carlson
Contributing Editor

Your ethics and compliance program should make people uncomfortable

We have seen a rapid increase in dedicated ethics and compliance departments and programs in Nordic companies during the last decade. However, there is no local regulation that explicitly requires formal ethics and compliance work. The demand for formalized ethics and compliance work stems from the U.S. Sentencing Guidelines, Sarbanes Oxley Act, and FCPA.

In the continuous stream of corporate scandals, the regulators have noted that sanctions and financial penalties are insufficient to change corporate conduct. Also, companies are encouraged to implement and are even rewarded for implementing ethics and compliance programs. Today even analysts, investors, and financiers have understood the value of this work and ask companies for proof of what they are doing.

In my doctoral thesis, “Is it not common sense to do the right thing?” I argue that the call for formal ethics and compliance work may risk becoming counterproductive if the more informal aspects of the work are not acknowledged. Ethical business practices are most visible in their absence, which may pose challenges for compliance officers when the board and management may perceive that there is not an issue, as they have not encountered any problems.

The investment in the work may remain superficial, with an investment in the formal aspects such as hiring a compliance officer, drafting policies, and implementing e-learning. These formal aspects are necessary but by no means sufficient. Based on my professional experience, from working over a decade with various global companies, it has become evident that the work’s effectiveness only becomes visible under challenging situations when real ethical dilemmas are faced.

The effectiveness of the compliance work is measured when, e.g., the presence in a complex but financially profitable market is evaluated, when a financially successful sales manager should be dismissed due to compliance concerns, or when an agent is onboarded purely for the reasons of “opening doors” and “connection to the decision-makers.”

Ethics and compliance work too often is reliant upon the compliance officer and how well they cope with “ethical struggles,” whether the person is persistent enough to continue bringing ethical dilemmas to the table and information that may challenge existing practices and decisions if the compliance officer subdues to the ethical struggles the compliance work risk remaining as a “paper program” with little impact on the actual business practices and decision making.

The aspiration for more ethical business practices will give rise to frictions, and ethical issues cannot be controlled in the same manner as, for example, financial numbers. Instead, you have to question what is behind the numbers and how these have been achieved. The purpose of the ethics and compliance work is to steer behaviors and enable the right decisions at all levels in the organization.

There is no self-interest in preparing policies and training if these are not tailored towards behaviors and decision-making. The foundation of an ethics and compliance program is people, and people make mistakes. As such, there is no such thing as a perfect compliance program. There are, however, effective compliance programs, a program that supports employees in identifying ethical dilemmas and challenging unsustainable ways of working and speaking up, and raising concerns.

If the main focus of the ethics and compliance work is on formal policies, controls, and procedures, the work risk becoming a source of false comfort. Unfortunately, this type of program may be well perceived by management, as the work does not “challenge the status quo.” The formal requirements are fulfilled.

However, the real impact is disregarded. And saying that you focus on “a culture of compliance” is not sufficient in itself, as culture is what you do and not what you say. Compliance work that is not perceived as” uncomfortable” will not be practical, and this type of work may harm the company.

I encourage all decision-makers, including the board and executive management, to assess the effectiveness of the compliance work within their organization by how “uncomfortable” it feels. If you want to foster more ethical corporate conduct, one has to realize that there needs to be a change, not only on paper but also in practice.

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