Risk and compliance: How to develop a true culture of compliance

2 LexisNexis The Future of Law. Since 1818. 3

Risk and compliance: How to develop a true culture of compliance

On 24 April 2014, the Lexis In-house Advisory Board came together to share thoughts on creating and maintaining a true culture of compliance within their businesses.

The discussion was facilitated by Wendy Addison, formerly a whistleblower in South Africa’s largest corporate scandal and now a development coach, speaker and author.

Key topics discussed and covered in this paper:

– What is a true culture of compliance?

– How can a culture of compliance be encouraged?

– Who is responsible for creating this culture?

– What to do when faced with pressure to ‘bend the rules’?

What is a true culture of compliance?

The group discussed some of the characteristics of a true culture of compliance – a business where there is never a need for an employee to blow the whistle. There are many aspects to this, but one consistent theme was the need for business leaders (including but not limited to senior lawyers) to both set an example, and ensure that the corporate environment protects and supports the dissenting voice.

Protection and support of the dissenting voice is important because there is often a natural tendency towards a herd-mentality, particularly when people are unsure or under pressure. Speaking out is a learned behaviour that requires practice and support; and the earlier it happens, the sooner problems can be identified and resolved. There are a number of reasons why employees may feel afraid to speak out, ranging from a perceived impact on career progression to a fear of standing out from the crowd.

“Successful leaders demonstrate that they value challenge and the moral ability to question or speak out.”

Successful leaders demonstrate that they value challenge and the moral ability to question or speak out. They have a responsibility to help employees develop an authentic voice, and to encourage the asking of questions when things are unclear. For example “I am unsure of the policy on entertaining clients, please can you explain it again?” or “I need time to digest these numbers overnight”. Reward the devil’s advocate.

It is of course important that business leaders themselves set the “tone from the top” and are perceived as impeachable. One rule of thumb might be “If you wouldn’t want it to be on the front page of the newspaper tomorrow, don’t do it”.

How can we encourage and support a culture of compliance?

Financial compensation or reward In the US, whistleblowers get a percentage of the fine imposed if their information leads to a successful prosecution. However, while this might drive behavioural change, it makes whistleblowing seem like a self-interested act; rather than promoting that dissenting voices are essential.

Formal training Speaking out can be learned through a combination of training and practice. This can have a positive effect on the morale and motivation of employees, who will be conscious that positive behaviour is encouraged, and will feel empowered.

Leadership It is important to focus both on climate (the actual behaviour in your business) and culture (the intended behaviour of the business). Climate can be changed quickly through training; but culture can be harder to shift. Training should be supported by actions that show business leaders take this seriously; for example, through following up and acting on problems raised by employees, and exploring different ideas and opinions.

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Who is responsible for creating and maintaining a culture of compliance?

The group agreed that ethical behaviour should not be the responsibility of any one individual or function within the business; but must be shared by everyone, including all senior management.

There was some discussion about whether it is a good thing that general counsel are sometimes described as “the conscience of the company” – and whether this can have a perverse effect where other functions abdicate responsibility.

“…in-house lawyers do have an added responsibility to make a value judgement and set the parameters of behaviour.”

However, there was agreement that where people do ask questions like “Can I do this – is it legal?”, in-house lawyers do have an added responsibility to make a value judgement and set the parameters of behaviour. Advice given by in-house lawyers tends to be mindful of reputational risk, for example – rather than purely a technical application of the law. This proximity to real commercial decisions might make some junior in-house lawyers, fresh from the relatively distant world of private practice, uncomfortable, but it is an essential component of the role.

What should in-house lawyers do when faced with commercial pressure to “bend the rules”?

Understand commercials as well as the law

In all businesses financial targets have to be met. Unless you truly understand the commercial drivers you will struggle to persuade colleagues to your point of view. Understand and acknowledge that the purpose of the business is more than ‘making a profit’.

Become comfortable with finance and accounting rules, and learn to interpret the numbers without reliance on your finance department. This will give you credibility and also help you find another way to achieve the desired outcome. It will also provide you with an authentic voice when questions are necessary to be asked.

Be true to yourselves, and consistent on what is right and what is wrong

In the real world things are very rarely black or white. Everyone wants the business to be successful – and to receive their bonus – and faced with a number of interpretations of the law or financial data, it is tempting to veer towards the one that shows the business in its strongest light.

Compliance breaches are very often not driven by a criminal desire to steal from shareholders, and “This is the way we always do it” can seem a compelling reason not to rock the boat. There is a slippery slope from “fudging” something, and the implications are always felt in the long term.

Ultimately making the right decision in a grey area comes down to you as an individual, and the extent to which you have a mutual trusting relationship with your business.

About Wendy AddisonWendy is a published author, development coach and motivational speaker who spent over 20 years as an accountant specializing in treasury management within listed companies both in South Africa and the UK.

Wendy’s deep vision and core sense of integrity was vividly demonstrated past the theoretical and by her act of reporting corruption in the LeisureNet Ltd saga in the year 2000, better known as the biggest corporate disaster in South African history.

Ousted as a whistleblower, Wendy became locked into a massively lopsided war of attrition. On one side the wrongdoers, still with the credibility and authority of their positions and with a wealth of resources behind them. On the other side Wendy, discredited in the public’s eyes, unemployed, unemployable (because of the notoriety of the case), running out of money, receiving death threats and having lost the support of friends and family.

In April 2011, eleven years after initially reporting corruption, four years after jail sentences were imposed and a further three years during which Wendy needed to reignite the case after it ‘disappeared from the radar’, the original sentences were upheld and the corrupt jailed.

www.speakout-speakup.org

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