NEW YORK, May 19, 2020 (GLOBE NEWSWIRE) -- Corporate culture can have mortal consequences, as shown by deadly outcomes at Boeing (737 MAX), Vale SA (dam collapse in Brazil) and Pacific Gas and Electric (California wildfires). Each case exposed a gap between the content of companies’ ethics and compliance programs and the realities of the companies’ culture and conduct.

The stakes for organizational culture and conduct during the COVID-19 pandemic are even greater as corporate leaders determine how to reopen and balance safety, business continuity, opportunity and their commitments to ethics and compliance.

The jury remains out on how business leaders and their organizations will conduct themselves in the next phase of the pandemic and beyond. Ethics and compliance firm LRN Corporation’s new report, Confronting the Root Causes of Misconduct, was developed as the pandemic took hold in the U.S. and is based on a survey of 500 ethics, compliance and legal professionals. Their assessment of companies’ cultures of accountability is mixed:

  • Only 46% of ethics and compliance (E&C) professionals say their organizations’ senior leaders support effective sanctions or penalties on senior executives and high performers who are involved in misconduct.
  • Just 37% say their organization takes ethics into account when setting sales targets or goals.
  • Only 56% say their organization requires ethical conduct to be evaluated when deciding on employee bonuses.
  • Just 39% said their company takes ethics into account when hiring managers and executives.
  • Only 44% say their organization involves the E&C function when doing due diligence for mergers and acquisitions.

Those findings are balanced by some more encouraging ones: 75% of E&C professionals believe their organization takes ethical behavior into account when deciding on promotions; 83% say they believe the E&C function at their firm has the ability to raise issues directly with the c-suite or board; and 80% believe the function has the needed resources to carry out the mission to inspire ethical behavior.

“We’ve seen some inspiring examples of values-based decision-making during COVID-19. Think about leaders whose organizations have voluntarily put people first, protected their workforce, voluntarily shut down when authorized to be open; CEOs who hold weekly all-hands virtual meetings to answer concerns across their organizations; and of course employees in healthcare, electrical grid maintenance and other critical areas who, despite personal risk, go to work in order to ensure the welfare of others. These are examples of strong ethical cultures at work, of ethics programs with real impact,” said LRN Senior Advisor Susan Divers.

“However, we’ve also seen over the past 18 months instances where an underpinning of ethical culture was lacking – situations that led to compliance failures that had mortal consequences, on a grand scale. In the cases of Vale SA, PG&E and Boeing, the problems leading to catastrophes were known, regulators were deceived and decision-makers ignored concerns raised by employees who pointed to weaknesses that led to disaster,” Divers said.

She added, “And these disasters occurred despite elaborate sets of rules, processes and procedures designed to prevent them. Those companies had staff, training and the other standard elements of ethics and compliance programs. But good policies, procedures and rules only prevent misconduct when there’s a culture based on integrity, accountability and transparency.”

The report points to the commonalities among companies with strong ethical cultures: Affirmative values play a part in business decisions; employees can speak out without fear of retaliation; and governance is driven by values and transparency. These pillars of ethical culture determine whether E&C rules will be followed, ignored or circumvented.

At organizations that have established and nurtured a strong ethical culture, leaders at all levels model values-based behaviors and bring to life the organization’s Code of Conduct. “When values-based culture reigns, ethics and compliance is not just left to lawyers, it’s everyone’s responsibility. One could say the values are in the drinking water. These companies take ethics and compliance into account when setting revenue targets, and they endeavor to not incentivize misconduct and to avoid sending mixed messages when it comes to following the letter and spirit of internal controls,” said Emily Miner, Senior Advisor at LRN.

LRN’s analysis of its survey shows that organizations with those characteristics are the most likely to have high-impact E&C programs. According to the findings:

  • Companies with high-impact E&C programs are 60% more likely than those with less effective programs to make ethical behavior a criterion in bonus allocations.
  • Companies with high-impact E&C programs are 57% more likely than other firms to hold senior executives accountable for misconduct.
  • Employees of organizations where leaders weigh E&C criteria as they pursue business and revenue opportunities are 4.3 times more likely to question decisions that seem to conflict with organizational values; 3.8 times more likely to do the “right thing,” even if it’s not in their personal best interest; and 3.2 times more likely to speak up or speak out, even in front of managers.

“As business leaders plan for post-lockdown re-emergence and transformation, their corporate conduct will be a key bellwether of our future,” Miner said.

Added Divers, “In so many ways COVID-19 and reopening are a stress test; for one thing, we will learn which ethics and compliance programs are ‘paper only’ and which ones represent, and live at the heart of, the organization.”

About the Survey

The 2020 Ethics & Compliance Program Effectiveness Report: Confronting the Root Causes of Misconduct is based on a survey of 500 ethics, compliance and legal executives and experts around the world. It was conducted during the second half of 2019 and analyzed for this report during early spring 2020.

About LRN

LRN’s mission is to inspire principled performance. Since 1994, LRN has helped over 25 million people at more than 700 companies worldwide simultaneously navigate complex legal and regulatory environments and make ethical decisions, and has also helped hundreds of companies foster ethical, responsible, and inclusive cultures. LRN’s combination of practical tools, education, and strategic advice helps companies translate their values into concrete corporate practices and leadership behaviors that create sustainable competitive advantage. In partnership with LRN, companies need not choose between living principles and maximizing profits, or between enhancing reputation and growing revenue: all are a product of principled performance. As a global company, LRN works with organizations in more than 100 countries.

For additional information on LRN, visit www.LRN.com

For more insights from LRN on ethics, compliance, corporate culture and reputation, subscribe to our newsletter, The E&C Pulse.

Media contact:
Michael-Jon Romano
Sommerfield Communications
michael-jon@sommerfield.com
+1 (212) 255-8386