1
Ethics and Compliance in the 21st
Century
DAVID GREENBERGABBC LRN CORPORATIONSEPTEMBER, 2015
normal
A QUARTER CENTURY OF ETHICS AND COMPLIANCE PROGRAMS
4
FIRST GENERATION: 1990 – 2005
Lawyers, rules and codes of conduct
The Federal Sentencing Guidelines and comparables around the world
SECOND GENERATION: 2005 – 2010
Training and technology
Values, tone in the middle, and aspirations to ‘bake into the business’
THIRD GENERATION: 2010 – 2015
Outcomes, not just design and implementation
Blended learning, predictive metrics, empowered CECOs, business value
FOURTH GENERATION: 2015 and into the future
Purpose-driven, values-based, behavior-obsessed
E&C as an element of culture as a conscious business strategy for winning
5
1990 - 2005 2005 - 2010 2010 - 2015 2015 - 2020
Program Dimension 1G 2G 3G 4G
Orientation
• Rules based
• Values ignored
• Command and control
• Predominantly rules based
• Values acknowledged
• Acquiescence with
established order
• Predominantly values based
• Values prioritized
• Individual responsibility for conduct
• Strongly values based and purpose driven
• Values instrumental in inspiring conduct
• Individual ownership of stakeholder trust
and corporate reputation
Strategy
• Develop “defensible”
program
• Emphasize “tone at the
top”
• Implement and train on
comprehensive Code of
Conduct
• Leverage technology to
manage risks
• Emphasize importance of
ethical culture and “tone at
the middle”
• Make training more engaging
• Address extended enterprise risks
• Strengthen program in relation to
enforcement priorities
• Implement blended learning
• Take systemic approach to managing risk
• Apply strategic, transformative focus on
culture and values
• Turn “push” into “pull”
Structure
• Ensure program has at
least minimal elements
prescribed by official
guidance
• Enhance and scale program
to serve needs of global
enterprise
• Engage and leverage
functional and operational
leaders through E&C
committees
• Emphasize independence of E&C
function
• Elevate CECO role
• Enhance oversight capabilities of
board of directors
• Optimize E&C-related information sharing
and collaboration across the enterprise
• Utilize real-time risk intelligence gathering
• Leverage technology to enable smart
decision making and risk taking
Business
Integration
• Distribute Code of
Conduct and corporate
policies
• Require certification of
training completion
• Involve operational managers
in training
• Recruit E&C champions in
business units
• Engage and align business partners
• Communicate business value
contribution of E&C
• Set and evaluate strategic goals based on
core purpose and values
• Consolidate E&C as core business
function
• Demonstrate business value contribution
of E&C
Social
Integration (Culture)
• Mention program in
employee onboarding
• Communicate periodically
with employees regarding
program
• Brand program
• Establish awards and
recognition programs
• Maintain frequent employee
communications
• Include values-based criteria in
individual performance appraisals
• Celebrate acts of ethical leadership
• Hire for character (as well as skills)
• Evaluate ethical leadership skills
• Utilize 360°appraisals, including values-
based behavioral assessment
Evaluation(Effectiveness)
• Conduct ad hoc
assessments focused
mainly on program design
• Evaluate program periodically
as to its effectiveness in
preventing unethical as well
as illegal conduct
• Evaluate outcomes; design and
implementation of program
• Seek and apply predictive metrics
wherever possible
• Identify and leverage effectiveness drivers
• Regularly assess organizational culture
(especially with behavioral focus)
What’s the Underlying Theme?
“Compliance is a Culture,
Not Just a Policy.”
US Department of Justice, Deputy Criminal Director of the Antitrust Division
DEEP DIVE ON E&C EFFECTIVNESS Introducing the Program Effectiveness Index (PEI)
• Designed to measure the degree to which E&C programs in
genuinely impact their companies
• Last data published Q2 2015 based on responses from more
than 200 companies worldwide.
• Built on eight data points reflecting impact:
o as a business enabler (e.g., providing guidance, enabling better
decision making);
o as a corporate conscience (e.g., promoting an ethical culture and
values-based behaviors);
o In employee application of the company’s code of conduct;
o In whether E&C education affects employee behavior and decision
making;
o in the celebration of acts of ethical leadership.
C-Suite Behavior Drives Ethics and Compliance Effectiveness
Making Ethics and Compliance a Real Business Priority
Communicating the Importance of Ethics and Compliance
10
Making Real Progress on Regulators’ Guidance Drives Effectiveness
Celebrating Ethical Conduct Drives Effectiveness
Average PEI scores based on frequency of celebrating acts of ethical leadership:
Top quintile companies said they celebrate acts of ethical leadership “often” or
“very often” in the following ways:
• Awards (55%)
• Recognition in team meetings (45%)
• Recognition in company communications 42%)
• Job promotions (23%)
What Have We Learned?
13
Don’t ‘Do Compliance’ – ‘Get Compliance’
Built-in, not bolted-on
Ethics and compliance as part of core business objectives,
communication, evaluation, celebration
E&C leaders with seat at the table who coach business leaders
CEO and senior leader actions drive beliefs and behavior
Focus on Culture
Values drive behaviors
Behaviors drive outcomes
Purpose, values and trust have disproportionate impact
Measure What Matters
Develop metrics about ‘how things really work around this
place’
Set accountabilities and empirical targets
Reward success and recalibrate for failure
Measuring What Matters: The Global HOW Report
36,000 Employees, 2 Million Observations
Copyright ©2013 LRN. All Rights Reserved.
• There are three systems that bear on behavior: Governance, Culture, and Leadership. Organizations need to align them into a single system capable of animating inspired behavior.
Evolving to a human operating system
BLIND
OBEDIENCE
INFORMED
ACQUIESCENCE
SELF-
GOVERNING
• Rigid Hierarchy
• Dictatorial
• Coercion
• Command & Control
• Carrots & Sticks
• Rules
• Success
• Connect & Collaborate
• Values
• Inspiration
• Significance
Three Archetypes of Culture
47
34
24
Misconduct
Copyright ©2013 LRN. All Rights Reserved.
BLIND OBEDIENCE
INFORMED ACQUIESCENCE
SELF-GOVERNING
38
4642
67
80 82
92 9299
Loyalty Satisfied CustomersInnovation
BLIND OBEDIENCE
INFORMED ACQUIESCENCE
SELF-GOVERNING
25
45
33
48
73
84 8174
97 99 9893
Recommend
as employer
Financial
performanceAdopt ideas Good
reputation
BLIND OBEDIENCE
INFORMED ACQUIESCENCE
SELF-GOVERNING
3%54%43%
BLIND OBEDIENCE
INFORMED ACQUIESCENCE
SELF-GOVERNING
27%
27%
46%
39%
3%
4%
84%
7%
CEO
Average
“We areself-governing”
“We inspireour people”
“We usecoercion”
“We reward values-based behavior”
Trust
Mission
Values
Likelihood of
outperforming
competition
1.5X
1.8X
1.9X
BLIND
OBEDIENCE
INFORMED
ACQUIESCENCE
SELF-
GOVERNING
Trust 1%
Values 1%
Mission 8%
Behaviors (percentage high)
3% Horizon
2% Collaboration
2% Information
1% Speaking up
1% Inspiration
5% Resiliency
4% Operational efficiency
Outcomes
25% Good Ideas are readily accepted
47% Observed unethical behavior
27% Unethical behavior reported
28% No retaliation for reporting unethical behavior
46% Will be working here in next 12 months
46% Willingness to put in extra effort
33% Willingness to recruit friends to work at the company
42% Company takes community responsibility seriously
37% Company invests in the community
42% Company has satisfied customers
45% Company has a good reputation with customers
49% I try to inspire others
48% Better financial performance than competition
38% Higher level of innovation than competition
Blind
Obedience
BLIND
OBEDIENCE
INFORMED
ACQUIESCENCE
SELF-
GOVERNING
Trust 14%
Values 6%
Mission 44%
Behaviors (percentage high)
9% Horizon
21% Collaboration
18% Information
6% Speaking up
18% Inspiration
33% Resiliency
51% Operational efficiency
Outcomes
73% Good Ideas are readily accepted
34% Observed unethical behavior
61% Unethical behavior reported
57% No retaliation for reporting unethical behavior
80% Will be working here in next 12 months
82% Willingness to put in extra effort
81% Willingness to recruit friends to work at the company
83% Company takes community responsibility seriously
71% Company invests in the community
82% Company has satisfied customers
84% Company has a good reputation with customers
78% I try to inspire others
74% Better financial performance than competition
67% Higher level of innovation than competition
Informed
Aquiescence
BLIND
OBEDIENCE
INFORMED
ACQUIESCENCE
SELF-
GOVERNING
Trust 88%
Values 78%
Mission 100%
Behaviors (percentage high)
49% Horizon
94% Collaboration
94% Information
75% Speaking up
89% Inspiration
57% Resiliency
94% Operational efficiency
Outcomes
97% Good Ideas are readily accepted
24% Observed unethical behavior
88% Unethical behavior reported
79% No retaliation for reporting unethical behavior
92% Will be working here in next 12 months
98% Willingness to put in extra effort
98% Willingness to recruit friends to work at the company
98% Company takes community responsibility seriously
94% Company invests in the community
99% Company has satisfied customers
99% Company has a good reputation with customers
97% I try to inspire others
93% Better financial performance than competition
92% Higher level of innovation than competition
Self-
Governing
• Workplace • Customers • Supply Chain • Community
HOW Freedom Works
27
Freedom FROM
• Superfluous rules and regulations
• Overly structured relationships
• Top-down style
• Zero-sum logic and old stereotypes
Freedom TO
• Work together, bound by a common set of values and goals
• Fully harness potential in relationships
• Create greater shared value, impact and meaning
x x x
3.4x4.6x
6.6x
10.7x
20x 20x
Long-term
success
Financial
Performance
Innovation
Copyright ©2013 LRN. All Rights Reserved.Copyright ©2013 LRN. All Rights Reserved.
Freedom From / Freedom To Boosts Business Performance
Partner Example 1: Identifying Key Behavioral Drivers
DESIRED OUTCOME
Ensure people report misconduct when observed
KEY DRIVERS
• There is trust in the work environment
• Behaving according to mission rewarded
• People free to question established ways
31
A major Canadian bank wanted to refresh their
brand identity and ensure that their interactions
with customers felt authentic. In the process,
they realized that they needed to reexamine their
core character.
LRN designed and executed a company-wide
series of conversations to understand the current
climate, articulate a vision for the future, and
design values and behaviors to get them there.
Focus groups and workshops captured the voice
of employees at all levels and geographies in the
organization. Regular calibration with the
executive team provided leadership and
continuity.
Partner Example #3
To be the bank that
grows great
communitiesVision Where We’re Going
ValuesWho We Are
Respect
Embrace
difference
Integrity
Do what’s
right
Empathy
See things
from
another’s
perspective
Courage
Challenge
thoughtfully
Speak up and
be candidBe authentic and
transparent
Admit when you
don’t have the
answersNo one can it alone
Help others
succeedGo above and
beyond to support
each other
Listen without
judgingUnderstand then act
Seek out new
perspectivesChallenge what’s
possible
Find a better wayTackle real issues
and innovate
Make it your
problemTake ownership and
follow through on
your commitments
Balance risk and
opportunityAchieve long-term
success over short-
term gain
Unite to serve our
customerBreak down barriers
and over-deliver
Engagement Impact Loyalty Service
Behaviors How We Do Our Work
Outcomes Why
A large US-based technology company was
looking to spur a major turnaround, starting with
the culture. LRN has been working with them
to re-launch their agile program, design a new
self-governing business unit, and expand their
existing values statement into a full Core
Architecture model.
ACME had recently conducted extensive
qualitative and quantitative employee opinion
research. In addition to a reexamination of the
quantitative data, LRN took the existing raw
qualitative output and re-coded it to analyze it in
the GCL framework. In partnership with the
executive team, LRN created a new Core
Architecture that reflected the existing needs
and aspirations of employees.
Partner Example #4
Summary of LRN’s Model for ACME
34
• For each of ACME’s Core Values,
LRN identified six behaviors that
any individual in the organization
can demonstrate, regardless of role
or title.
• The 24 behaviors were articulated in
both long and short statements; the
former fully characterize the
behavior, while the latter were
developed to help people more
easily internalize the Core Values.
• Finally, LRN mapped culture
tendencies that hinder ACME’s
progress to the behaviors in the
model that can counteract those
tendencies.
INNOVATES & ADVANCES
Adapts easily
Challenges status quo
Creates space for new ideas
Improves continuously
Takes risks
Provokes constructively
RESPECT
Engages meaningfully
Communicates openly
Extends trust
Speaks out
Embraces diversity
Responds promptly
innovation
speedexecutionCUSTOMER LOYALTY
Delivers excellence
Builds continuity
Puts customer first
Initiates action
Anticipates needs
Envisions solutions
TEAM SPIRIT
Seizes responsibility
Commits thoughtfully
Seeks feedback
Looks for synergies
Supports others
Promotes accountability
EXAMPLE: Core Architecture Model incorporates 4
core values supported by 24 behaviors and oriented
around 3 guiding principles
35
Innovates & Advances RespectIs adaptable and willing to embrace change.
Does not hold on to old ways of doing things out
of fear.
Adapts easily Engages meaningfullyIs genuinely interested in establishing
meaningful connections with others, irrespective
of their role, title or tenure.
Creates room for new ideas and opportunities;
doesn't postpone to tomorrow what can be done
today.
Challenges status
quoCommunicates openly
Communicates with openness and integrity:
Presents the same truth to all parties and
promotes shared understanding.
Is not complacent; takes action to change the
status quo if a process is inefficient or
duplicates other efforts.
Creates space for
new ideasExtends trust
Trusts team members to deliver what they say
they will deliver.
Seeks to continuously improve oneself: Looks
for learning opportunities in project work,
relationships with colleagues, and formal
training and development.
Improves
continuouslySpeaks out
Speaks out when faced with behavior that is
inconsistent with CA's Core Values.
Takes and shares risk to develop new ideas. Takes risks Embraces diversityRespects colleagues' work styles and
commitments; helps team to look at differences
as a potential asset.
Is a respectful agitator: Pushes team to come
up with new ideas and make time to explore
them.
Provokes
constructivelyResponds promptly
Responds to others in a timely fashion;
communicates back in an attentive way.
Customer Loyalty Team Spirit
Delivers superior quality, services and support
in all he/she does. Strives for excellence,
irrespective of constraints or deadlines.
Delivers excellence Seizes responsibilityTakes responsibility for mistakes and is able to
learn from them.
Earns customers' trust: Consistently meets
expectations and delivers on time.Builds continuity Commits thoughtfully
Is thoughtful about the way he/she commits:
Plans ahead, perseveres in the face of
obstacles, and always follows through.
Displays a service mindset; seeks ways to help
even when not expected or required to.Puts customer first Looks for synergies
Proactively looks for ways to create and/or
leverage synergies across the company.
Takes ownership of emerging problems; does
not wait for others to make decisions, nor uses
others' inaction as an excuse not to act.
Initiates action Seeks feedbackEncourages feedback and seeks out other
people's point of view.
Is invested in fully understanding his/her
customers; aims to anticipate their needs, rather
than react to them.
Anticipates needs Supports othersHelps colleagues achieve their goals and offers
practical support in tough times.
Thinks in terms of end-to-end solutions rather
than standalone deliveries.Envisions solutions Promotes accountability
Holds himself/herself accountable for his/her
contributions to the team's goals, shares
potential challenges, and encourages
teammates to do the same.
Negative Tendencies and
Behaviors That Can
Counteract Them
Politics /
Favoritism /
Managing up
Information
hoarding /
Opaque
information
sharing
Diffusion of
responsibility /
Lack of
accountability
Low trust in
leadership's
commitment
to ACME
Skepticism
of new
initiatives
Fear of
failure
Expectations of
negative
consequences
Low trust /
Micromanag
ement /
Blame
Lack of
agency
Silos /
Inter-team
competition
Respect
Engages meaningfully x x x x x x
Communicates openly x x x x x x x
Extends trust x x x x x x x
Speaks out x x x x x x
Embraces diversity x x x
Responds promptly x x
Team Spirit
Seizes responsibility x x x
Commits thoughtfully x x x x x
Looks for synergies x x x x x x x
Seeks feedback x x x x x x x x x
Supports others x x x x
Promotes accountability x x x
Customer
Loyalty
Delivers excellence
Builds continuity x x
Puts customer first x x
Initiates action x x x x x
Anticipates needs x
Envisions solutions x
Innovates &
Advances
Adapts easily x x
Challenges status quo x x x x x
Creates space for new
ideasx x x x
Improves continuously x x
Takes risks x x x
Provokes constructively x x x x x
Mapping to LRN’s
Governance, Culture, and
Leadership Framework
Accountability CollaborationInformation-
SharingInspiration
Operational
EfficiencyResiliency Significance
Speaking
OutTrust Values
Respect
Engages meaningfully X X
Communicates openly X X
Extends trust X
Speaks out X
Embraces diversity X
Responds promptly X
Team Spirit
Seizes responsibility X X
Commits thoughtfully X X X
Looks for synergies X X
Seeks feedback X X
Supports others X X
Promotes accountability X
Customer
Loyalty
Delivers excellence X
Builds continuity X X
Puts customer first X X
Initiates action X X
Anticipates needs X
Envisions solutions X X
Innovates &
Advances
Adapts easily X
Challenges status quo X
Creates space for new
ideasX
Improves continuously X X X
Takes risks X X
Provokes constructively X X
39
ETHICS AND COMPLIANCE IN THE 21ST CENTURY
DAVID GREENBERGLRN CORPORATIONSEPTEMBER 2015