With uncertainty, the only predictable aspect for 2023, companies and organisations need to pay even more – not less – attention to their ethics and compliance (E&C) efforts to ensure resilience and optimal performance.
This is the recommendation of the LRN Corporation report, 2023 edition of LRN’s E&C Program Effectiveness Report, which surveyed more than 1,850 ethics and compliance professionals at companies and organisations with at least 1,000 employees, across 26 industries and in 10 different countries.
About 85% of respondents report that their ethical cultures were stronger because of their experiences meeting the challenges of the past year, with more than half of respondents giving their executives high marks for taking ethical considerations into account in business decision-making. Also, 84% said their organisations relied on values, rather than rules, to motivate their employees to “do the right thing.”
However, the research also highlights key areas where improvement is much needed to strengthen E&C programs, with a significant proportion of respondents identifying that inadequate internal systems (76%), staff shortages (73%), budget constraints (73%) and employee disengagement (68%) are major obstacles to program effectiveness.
“This year’s report shows more starkly than ever before that there is a significant performance gap between organisations which are doing the minimum and those aspiring to the maximum when it comes to ethics and compliance,” said LRN senior advisor Susan Divers, lead author for the report.
“Given the emphasis by regulators around the world on personal accountability and rapidly emerging, highly complex risks, is it critical that boards and C-suite leaders ensure their organisation’s E&C programs are well resourced and supported.”Susan Divers
Other notable findings
- Despite the war in Ukraine and enhanced/escalating sanctions on several countries globally, 25% of respondents said that they plan to enhance their trade controls and sanctions training and 45% have strengthened risk controls in this area
- About 60% felt that their board of directors actively ensures that misconduct by senior executives is effectively addressed, with three-fifths of those surveyed reporting that their organisation has formal requirements to consider executives’ and employees’ ethical behaviour in performance evaluations, promotion decisions, bonus awards and hiring for key control functions
- 44% of respondents say that their organisation has disciplined or terminated the employment of a senior executive or top performer for unethical behaviour in the past year – with 76% of those respondents saying that the individual was subject to financial “clawback”
- Increased focus on ethics and compliance is making a real difference on the ground, with 52% of respondents reporting that consideration of ethical and compliance factors and risks leads to their organisation substantially modifying or even abandoning a business initiative where necessary
- Greater use of data and metrics to assess program effectiveness was reported by 52% of respondents, but only 20% improved their ability to capture and understand such metrics
LRN CEO, Kevin Michielsen, says businesses around the world find themselves in the midst of a ‘perfect storm’ at the moment, including growing regulatory scrutiny, economic uncertainty, stakeholder activism, trade sanctions, and supply chain disruptions, among many other factors.
“The link between fostering an ethical culture and business performance is clear and will be increasingly critical in order to weather these challenges and navigate what will continue to be difficult terrain ahead.”Kevin Michielsen