Ethics and Compliance: How can IHLs and COLPs be more effective?

LRN has published a very interesting report on ethics and compliance within corporates, the 2015  Ethics and  Compliance Effectiveness Report, which is of broader significance.  It particularly focuses on the vexed issue of whether it is better to separate the compliance and ethics function and in particular whether it is better to have a GC with a Chief Ethics and Compliance Officer (CECO) hat or to have an independent CECO.

Their main way of judging effectiveness is to measure what they call a Program Effectiveness Index (PEI) which looks at the impact of compliance and ethics programmes on:

  • providing advice/ counsel, enabling better decision making;
  • promoting an ethical culture and values-based behavior;
  • celebrating acts of ethical leadership;
  • the frequency of employee application of the company code of conduct; and
  • the perceived effect of E&C education on employee behavior and decision making.

They then measure the scores on the PEI, total them up as a kind of outcome score and compare them with inputs to see if particular inputs correlate with the higher PEI scores.  So, for example, programs in which the senior ethics and compliance leaders report to the CEO are more effective, on average, than those in which senior leaders report to the general counsel.  They have tried to concentrate only on significant correlations between inputs and the PEI (though their method of reporting significance is a bit strange) and yet we get quite a lot of correlations to make sense of.  LRN would say, not at all implausibly, that this reflects the fact that ethics and compliance programmes are run on multiple levels and in many ways.   Indeed, a central finding appears to be:

high-impact ethics and compliance leaders set more goals, seek more inputs, generate more outputs, and use more rigorous metrics than do their less effective peers…

Putting aside the fact that these high-impact individuals sound a bit annoying (joke), I’m going to focus here on one or two lessons from the report and encourage interested readers to download a copy of the report from here for more detail.

A central concern of the report is the debate over whether the positions of chief ethics and compliance officer and general counsel should be occupied by the same person. As LRN puts it:

Beyond the divergent skill sets and share of mind required, their arguments have turned on the role of the GC in advising on what “can” be done, while the CECO speaks to what “should” be done.

Whilst they clearly have a great deal of sympathy with the view that the CECO and GC roles should be separate that is not what the data in their report suggests:  As they say, on this data

It Turns Out That Two Hats Are (for Now)  Better Than One.

…two-hatted stalwarts run programs significantly more effective than those of their one-capped colleagues.

…What we see suggests that the greater effectiveness of the GC/CECOs’ programs reflects the nature of the GCs’ interactions and other roles within their organizations.

Interestingly, in continuing to support having separate CECOs reporting to the CEO, they also suggest CECOs need to become more like GCs, “building stature and cultivating key relationships”.  And they, “must seek to replicate or improve on the business service paradigm that successful law departments adopted decades ago.”

There is a bit of a nagging doubt in my mind about whether the research is always able to compare like with like.  When they say, “dedicated CECOs are considerably more likely to have run into negative results,” for instance I was prompted to wonder whether that is because CECOs have been appointed where ethics and compliance is a bigger problem or where, because they have been appointed, they are more inclined to think – or be willing to acknowledge – that there is a bigger problem.  They may have lower PEIs because they are more clear-sighted about the problems.  They appear to have larger budgets, which may partly support my hypothesis.  Similarly, LRN find CECOs are, “considerably more ambitious and seems much more focused on critical aspects of E&C effectiveness than the GC/CECOs.”

There are also interesting, I would say, counter-intuitive findings which seem a bit less prone to this criticism.  In particular, one thing that caught my  eye was the finding that, “programs led by GC/CECOs are doing substantially more training, in more, and more effective, ways.”  Higher rates of facilitated group figure strongly as a means of improving ethics programme performance.  It is also claimed that:

GC/CECOs may be less interested in nuts and bolts, but they are, on average, far more likely to be  values-focused….  As we have previously determined, values-based programs outperform rules-based programs by- almost every measure.

An equally resonant finding, probably of relevant to anyone who holds themselves out as, or is expected to be, an ethical leader was the finding that

Whether or not the typical member of the C-Suite often or very often addresses issues of ethics and compliance in staff meetings, operational reviews, and similar settings is more closely associated with the presence of an effective E&C program than any other single behavior or attribute.

It was also rare: only 11% of respondents reported that this happened and, “nearly two-thirds of all respondents [reported that] senior leaders bring up such matters rarely or not at all.”  The day to day demonstrable relevance of ethics and compliance seems to be a key here (and middle management commitment in these term may be doubly important).  In a similar vein, whether “employees are likely or very likely to consult the code of conduct when faced with a decision or dilemma,” LRN say is predictive of good performance.

The report contains a wealth of data on quite detailed aspects of ethics and compliance programmes: metrics, evaluation, training, culture and the like.  Most studies of this kind suffer a bit from a degree of circularity and self-reporting: it’s not always possible to disentangle whether those who think they are doing better really are doing better, but even so it is well worth a read.  As well as it’s immediate concerns it got me wondering whether it is time to do something similar with COLPs in law firms.  There are a lot of analogues: does law firm’s C-suite take ethics seriously?  Is it ethics or compliance that COLPs are about?  Is ethics and compliance embedded or bolted on?  Do middle managers (who they?) take this sort of thing seriously?  How is training delivered?  How are values conceived of and promoted?

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About Richard Moorhead

Director of the Centre for Ethics and Law and Professor of Law and Professional Ethics at the Faculty of Laws, University College London with an interest in teaching and research on the legal ethics, the professions, legal aid, access to justice and the courts.
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