Boards Who Engage on Topics of Ethics and Compliance See Better Business Outcomes

Employees in organizations with boards engaged in measures of ethics and compliance accountability were 1.6x more likely to do the right thing, even if it’s not in their personal best interest

Substantial differences were noted between organizations with boards engaged in the area of ethics and compliance compared to those with less engaged boards, according to the latest annual Ethics and Compliance Program Effectiveness Report published by LRN.

The findings in this report suggest a powerful effect: When boards send clear signals that company leadership must behave ethically without question, those expectations cascade through the organization and translate into action. The data also supports existing behavioral science research that holds that organizational justice — the perceptions of fairness in treatment of individuals inside an organization — is critical for effective ethics and compliance programs.

The report, titled “The 2021 Ethics & Compliance Program Effectiveness Report — Leading the Way: How Boards of Directors Can Engage in Ethics and Compliance,” examines board engagement on topics of ethics and compliance programs during a year when the COVID-19 pandemic affected workforce behavior around the world. LRN, the leader in ethics and compliance solutions serving 700 major corporations globally, publishes the Ethics and Compliance Program Effectiveness Report annually.

The new research suggests that company boards who doubled down on ethics and compliance in 2020 were more likely to build stronger ethical foundations, better positioning their organizations to meet future challenges and deliver outcomes consistent with society’s elevated expectations for business. This is important in an era where culture is understood as a key driver of business performance, reflecting the idea that why a company exists and how it operates is as important as what it does.

Surveying nearly 630 ethics, compliance and legal executives and experts at companies and organizations around the world with at least 1,000 employees, LRN researchers looked at three measures of board engagement:

1. Championship: In a time of crisis, did the board actively support and effectively oversee the E&C program?
2. Open Communication: Does the board enable open, direct, two-way communication with the E&C function?
3. Accountability: Does the board play an active role in holding senior executives or high performers accountable for misconduct?   

Notably, findings in the areas of championship and open communication are encouraging:

• 79% of the professionals surveyed agreed that their organization’s board of directors effectively supported their E&C program during the COVID-19 crisis.
• 77% of respondents indicated the E&C function has the ability to raise issues or concerns directly to the board of directors.

However, in the critical area of organizational justice, boards need to do a better job of holding senior leaders accountable on the same basis as everyone else in the organization.

• 60% reported that, in the past year, their board of directors has taken an active role in ensuring that any misconduct by senior executives or excellent performers is effectively addressed.

The research also found that when boards are known to hold leaders accountable for misconduct, 51% of their organizations actually disciplined or terminated an executive or high performer in the past year. In contrast, only 18% of organizations whose boards are less engaged in ensuring accountability took such action in the past year. This nearly-3x magnitude effect illustrates how powerful such signals and focus from boards can be. Ethics and compliance considerations play a larger role in key business decisions when senior executives know they will be held accountable for their behavior by their boards.

“We already know that effective ethics and compliance programs are key drivers of business outcomes,” says David Greenberg, Special Advisor to LRN and a public company board member. “The pandemic has provided businesses with an unparalleled opportunity to rethink assumptions and chart a better course. Boards have considerable strategic responsibilities. Given the intense regulatory and investor interest in environmental, social, and governance — running concurrently with increased employee activism, pandemic fallout, and the fight for talent — effective boards must understand business and culture.”

There has never been a more effective system to shape and direct behavior in an organization than culture. A well-positioned board in this new world of work is one that views the health, sustainability, and ethical foundations of its culture as strategic priority.