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Culture, compliance and corporate governance in the new decade

Julian Moore

This year marks the beginning of a new decade, challenging us to look back at the progress and innovation the business community has made with regard to compliance and corporate governance, but also to look ahead to the 2020s and what will be required of companies to thrive in an increasingly diverse and global consumer market.

Highly-developed and formalized ethics and compliance programs are not enough

Corporate entities with highly-developed and formalized ethics and compliance programs often still find themselves inculpated in nefarious acts of corruption and fraud. Evidently, the well-meaning reforms instituted at many companies in the aftermath of the financial collapse are simply insufficient to quell rogue employees from acting badly, or to overcome a corporate culture that has not fully adopted and prioritized compliance and governance measures of integrity.

Inadequate compliance training programs may subject a company to civil and criminal liability

Increasingly, companies are realizing not only must they clearly outline their principles of ethics and compliance, they must also actively create and maintain a culture that promotes compliance. One-size-fits-all annual compliance training programs are wholly inadequate to create the work environment companies seek, employees desire, and regulators and the government demand. They are also dangerous and likely to subject a company to civil and criminal liability. Indeed, “culture” is referenced by the U.S. Federal Sentencing Guidelines, which include expectations for companies to promote an “organizational culture that encourages ethical conduct” and “a commitment to compliance with the law.” Similarly, The Organisation for Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions refers to the importance of a strong culture of organizational ethics.

Employees want to be heard

Today’s employees want to work for an employer that encourages their employees to speak up in a safe environment where they will not feel victimized. Over the past few years, there has been a lot of attention paid to whistleblowing hotlines. Significant operational resources have been devoted to training in conduct and culture, expressly to encourage speaking up and calling out misconduct, particularly allegations of non-financial misconduct that involves issues of race, sex, and sexuality. Nevertheless, most companies, despite giving the right message and having correct written policies and a framework in place, have difficulties engendering the right culture to ensure the fair treatment and confidentiality of both the whistleblower and those subsequently investigated. Today’s employees recognize that the way in which a company deals with employee complaints, whistleblowing, and negative comments and critiques in general is a litmus test of the health of the firm’s culture more generally.

Diversity and inclusion

Diversity and inclusion matter to today’s employees. In addition to being the right thing to strive for, having a diverse workforce helps companies acquire and retain the best talent, build employee engagement, increase innovation, and improve business performance. Robust, well-crafted, and consistently followed antidiscrimination policies; effective training to mitigate biases and increase cultural competency; and removing bias from evaluation and promotion decisions should be priorities for any organization that wants to improve diversity. Companies that refuse to create a diverse and inclusive workplace culture will inevitably fail.

Corporate social responsibility

Today’s employees want to know they are working for a company that respects the environment and human rights, monitors its supply chain for abuses and potential negative impacts, and acts as a good corporate citizen that aligns with their values.

Businesses that are unable or unwilling to proactively incorporate environmental considerations into their day-to-day operations expose themselves to significant litigation and reputational risk. Of particular note is the way in which the human rights of the most vulnerable are threatened by climate change, and how claimants have used arguments grounded in the violation of such rights to seek to establish liability on the part of corporations. One method by which companies can facilitate transparency as to their potential impact on climate change is by publicly disclosing climate-related data concerning their business.

Conclusion

The global conversation about corporate culture is gathering speed. And for good reason. Both employees and consumers are demanding that the companies they work for and buy from operate as good corporate citizens that manifest cultures of compliance and ethical governance. Today, a successful corporate culture includes one in which employees are provided: (i) a safe environment in which they are encouraged to speak up and report misconduct; (ii) a diverse and inclusive workplace that reflects the society in which we live and individuals feel like they belong; and (iii) a workplace that values corporate social responsibility, which includes respect for the environment and human rights.

The new decade in which we have entered presents novel and interesting challenges for companies when it comes to culture, compliance, and corporate governance. It also presents an excellent opportunity for companies to re-evaluate their compliance programs to ensure they are congruent with their employee-, customer-, and government/regulator-demands. Those companies that recognize and adapt early to the changing cultural dynamic will be better positioned to handle the new risks and expectations.

The full version of this article can be read on allenovery.com.

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