Corporate Culture

Culture Compliance And Corporate Governance In The New Decade

This year marks the beginning of a new decade, challenging us to look back at the progress and innovation the business community has made with regard to compliance and corporate governance, but also to look ahead to the 2020s and what will be required of companies to thrive in an increasingly diverse and global consumer market.

In this new decade, “corporate culture” has a much broader definition and now includes, among other things, employer attentiveness to employee concerns, diversity and inclusion, and, more generally, corporate social responsibility. How companies respond to this broader culture mandate will have a significant impact on how well companies succeed in the new decade. Those companies that recognize and adapt early to the changing cultural dynamic in which we all operate will fare far better than entities that remain stagnant or turn a blind eye to the inevitable changes occurring in communities throughout the world.

“Corporate culture refers to the beliefs and behaviors that determine how a company’s employees and management interact and handle outside business transactions. Corporate culture is also influenced by national cultures and traditions, economic trends, international trade, company size, and products. Corporate cultures, whether shaped intentionally or grown organically, reach to the core of a company’s ideology and practice, and affect every aspect of a business.”

After the global financial collapse over a decade ago, both the public and private sector introduced external and internal reforms to ensure it would not happen again. Whether these reforms proved successful remains an open question. Nevertheless, there were some common messages with regard to culture that many companies integrated into their ethics and compliance programs in light of the 2008 collapse:

The items highlighted above are undoubtedly important to emphasize at any company seeking to instill a strong corporate culture of compliance and good governance. However, they alone are not enough. As evinced by the recent 1MDB, emissions, and foreign bribery scandals, corporate entities with highly-developed and formalized ethics and compliance programs often still find themselves inculpated in nefarious acts of corruption and fraud. Evidently, the well-meaning reforms instituted at many companies in the aftermath of the financial collapse are simply insufficient to quell rogue employees from acting badly, or to overcome a corporate culture that has not fully adopted and prioritized compliance and governance measures of integrity.

Increasingly, companies are realizing not only must they clearly outline their principles of ethics and compliance, like the ones described above, they must also actively create and maintain a culture that promotes compliance. One-size-fits-all annual compliance training programs are wholly inadequate to create the work environment companies seek, employees desire, and regulators and the government demand. They are also dangerous and likely to subject a company to civil and criminal liability. Indeed, “culture” is referenced by the U.S. Federal Sentencing Guidelines, which include expectations for companies to promote an “organizational culture that encourages ethical conduct” and “a commitment to compliance with the law.”[5] Similarly, The Organisation for Economic Co-operation and Development’s Convention on Combating Bribery of Foreign Public Officials in International Business Transactions refers to the importance of a strong culture of organizational ethics.

Creating an effective compliance program requires companies to go beyond a list of written rules. It requires instilling a top-to-bottom environment of achieving business goals with a commitment to compliance. It involves using data analytics, companywide open reporting, and live and online training, including “gamification” (using gaming tools), to help employees believe to their core that their conduct is right for the company, right for them, and something to be proud of. Indeed, today’s employees — that increasingly include Millennials (members of Generation Y) — value corporate culture more than ever. They are scrutinizing the culture of both the companies they work for and buy from.

While salary is important to today’s employees, the culture and environment in which they work is equally important, if not more so. A healthy work-life balance is essential. Employees want to work in an environment that prioritizes the health (both physical and mental) and happiness of its workers—even if it means a lower salary. Flexible hours, flexible vacation time, personal time, and an appreciation for personal needs (occasionally over professional needs) are expected.

As importantly, today’s employees want to know that their voice counts and they are being listened to. They want to work for an employer that encourages their employees to speak up in a safe environment where they will not feel victimized. Over the past few years, there has been a lot of attention paid to whistleblowing hotlines. Significant operational resources have been devoted to training in conduct and culture, expressly to encourage speaking up and calling out misconduct, particularly allegations of non-financial misconduct that involves issues of race, sex, and sexuality. Nevertheless, most companies, despite giving the right message and having correct written policies and a framework in place, have difficulties engendering the right culture to ensure the fair treatment and confidentiality of both the whistleblower and those subsequently investigated. Today’s employees recognize that the way in which a company deals with employee complaints, whistleblowing, and negative comments and critiques in general is a litmus test of the health of the firm’s culture more generally.

One of the many reasons diversity and inclusion is important to today’s employees is because they themselves are more diverse and inclusive than the generation before them. Millennials in the United States are the most racially diverse generation in American history, a trend driven by the large wave of Hispanic and Asian immigrants who have been coming to the U.S. for the past half century, and whose U.S.-born children are now aging into adulthood. In this realm, Millennials are a transitional generation. Some 43% of Millennial adults are non-white, the highest share of any generation. About half of newborns in America today are non-white, and the Census Bureau projects that the full U.S. population will be majority non-white sometime around 2043. More than any other generation, Millennials consider themselves politically independent, religiously unaffiliated, and interested in a wide variety of different nations, cultures, ideas, and beliefs.

Companies that acknowledge this reality, hire and work with a more diverse range of people, and develop authentic diversity and inclusion programs, will be better positioned to create the cultural environment today’s employees seek. Moreover, companies must realize that diversity and inclusion mean different things to employees in different countries, requiring emphasis on race, color, religion, gender, gender expression, sexual orientation, physical ability, social mobility, and more. Companies must be intentional about bringing diversity into meetings and work opportunities. The goal of inclusivity is to make sure that everyone feels included in everything they do and that each individual feels she, he, or they belongs.

 

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