Managing misconduct is often described as “a fight”, whether against corruption, bribery, fraud or a range of other unethical and illegal behaviours. This illustrates the fact that seeking to eliminate or even to reduce misconduct is not an easy task: it can feel like an on-going battle. However, this can lead to a major imbalance when organisations focus virtually all their attention in the field of workplace ethics on curbing misconduct. While this focus is vital, it is not sufficient.

Reducing misconduct and increasing ethical conduct

Minimising or even eliminating misconduct does not necessarily promote or ensure proactive ethical conduct, nor is it a sufficiently effective factor to create an ethical culture on its own. While in language being ethical is the opposite of unethical, in practice diminishing or eradicating misconduct does not imply that it will result in all that being ethical entails, such as the positive actions associated with sound values. Therefore, the ethics strategy that guides the organisation’s ethics management system needs to include a distinct emphasis on reducing misconduct and promoting and improving ethical conduct.

The effect of the divide between ethical conduct and misconduct is illustrated and supported by well-known research done by American psychologist Frederick Herzberg. His motivation-hygiene theory - also known as two-factor theory or dual-factor theory - was based on research into employee satisfaction and dissatisfaction. It showed that they were shaped by separate factors and that the absence of dissatisfaction did not lead to satisfaction. Similarly, the absence of misconduct does not lead to the deliberate, positives actions that constitute ethical conduct. Interestingly though, the presence of ethics and an ethical culture will positively impact compliance and thereby help to reduce misconduct.

Doing the right thing versus minimalist compliance

The tendency to focus largely on tackling misconduct is sometimes coupled to an internal focus on compliance instead of a comprehensive focus on ethics. Recognising this distinction, King III recommends that business leaders should “do business ethically rather than merely being satisfied with legal or regulation compliance … or limiting themselves to current social expectations”.

However, the increasing demand to be compliant with a multitude of laws and regulations is making compliance an onerous task in many countries. Compliance officers are battling to balance the many duties of the function, including establishing standards for business conduct, ensuring compliance with anti-bribery and corruption requirements, tracking and analysing regulatory developments, board reporting, amending policies and procedures and liaising with internal stakeholders and control functions. Two 2013 surveys provide interesting insights into the consequent pressures.

Thomson Reuters Governance, Risk and Compliance surveyed more than 800 compliance practitioners from financial services firms in 62 countries covering Africa, the Americas, Asia, Australasia, Europe and the Middle East between November 2012 and January 2013, to canvass their views on the costs of compliance and the greatest challenges they expected to face during the year ahead. The survey, the Cost of Compliance Survey 2013, confirmed that compliance requirements have increased, as has scrutiny from regulators and consumers. As regards on-going increases, 43% of the respondents said that they expect the amount of regulatory information published by regulators to be significantly more over the next 12 months than today. The survey report specifically noted that, given the continuing lack of interaction between internal audit and compliance, the alignment between these two functions needs to be improved.

Regulation in the financial services sector may be more demanding than in other industries. The Deloitte and Compliance Week Compliance Trends Survey 2013, which was conducted amongst American compliance executive across many industries, confirms this pressure. The survey found that the majority of companies still run compliance with relatively tight budgets and staffing. The survey also identified that the biggest operational issue around managing compliance risks was monitoring employee compliance with policies. Adding to this picture is the fact that many regulators are striving to be more proactive, rather than reactive.

At an operational level a solution to the demands of this role lies in working with and leveraging resources in other functions, such as legal, IT, HR and internal audit to achieve compliance goals. However, compliance is still likely to remain a very challenging role.

This could be used to justify a “tick box” approach to compliance, which is clearly not ideal, not least from a risk perspective. However, the far greater problem that can arise is that compliance comes to be seen as the totality of the organisation’s ethical focus and ethics initiatives - that companies decide that no more time, funds or resources can be allocated to anything else beyond compliance. This risk is enhanced by the reality that compliance is almost always obligatory (for example relative to legislation) while much of ethics can be considered voluntary. This echoes how Lord John Moulton, an English jurist writing in the early 1900s, described the law and ethics as drivers of human action - as amounting to “obedience to the enforceable” and as “obedience to the unenforceable” respectively.

The distinction between compliance and broad-based ethics is also reflected in the legal recognition of the letter and spirit of the law. Obeying just the letter of the law limits behaviour to the literal interpretation of the legislation, often in a minimalist manner. However, this ignores the intent or the spirit of the law. A purposive interpretation of the law, on the other hand, entails acting to give effect to the intention of the law, which is viewed as acting in a more comprehensive and ethical manner. So too for ethics: only complying with rules does not necessarily extend to the intended bigger-picture outcome of an ethical workplace.

The unsatisfactory consequence of a choice in favour of compliance instead of broad-based ethics would be to limit the company’s ethics to only one facet of ethics, the rule-based side of ethics. However, to be an ethical organisation and create an ethical culture require an equal focus on fostering value-based behaviours, which are much more sustainable and contribute significantly to an ethical culture. Rules and compliance are not sufficient to achieve an ethical culture.

Therefore, the question of whether an organisation needs values and rules or only one and not the other should not be a choice. Both are necessary. And organisations need values more because ethical behaviour can be achieved with sound values and very few rules, but not vice versa. Thus, ironically, more focus on fostering value-based behaviour, increasing ethical maturity and creating an ethical culture directly support the compliance function since the commitment it entrains includes compliance.

© Cynthia Schoeman, Ethics Monitoring & Management Services (Pty) Ltd, 2014