Ethics Exchange: Ethical Culture (Part One): the Role of Government

By Ethics Exchange posted Nov 13,2013 10:53


Steve Priest: Jeff, for twenty years the message I have sent more than any other—to the point of boring myself and no doubt you—is that “culture wins.” If a Code of Conduct or CEO speech says “Be honest” but the way to win in an organization is to “Be slippery,” slippery wins. Amazingly, in the past few years it seems that company leaders are taking the culture thing more seriously, perhaps because enforcement agencies are addressing it more frequently. At least that is my perception. Do you agree?

Jeff Kaplan: I definitely agree, Steve. For instance, in September the Securities and Exchange Commission charged a corporate executive with a violation of Regulation FD (“Fair Disclosure”) but declined to charge the company (First Solar Inc.) because the company had “cultivated an environment [another word for culture] of compliance…” And not only because enforcement agencies are addressing it more, but I also think business leaders are increasingly seeing culture as a way of projecting E&C into an organization that is not only effective but also efficient – sort of the equivalent of the diplomatic notion of “soft power.”    Does that sound right to you?

Steve: Yes, but you cited the SEC affirming something that I just think is Un-American, and wrong.  The phrase “culture of compliance” makes me break out in hives. No right thinking share-owner in a business, wants a culture of compliance. Compliance is defined as “the act of conforming, acquiescing or yielding.” A second definition is “a tendency to yield readily to others, esp. in a weak and subservient way.” Even if you adopt a meaning that surely the SEC means, which is a “culture of adherence to all rules and regulations,” I think you are headed down the wrong path. Airline employees who are upset with management but can’t/won’t strike bring operations to a grinding halt by “working to the rule.” How good is customer service that is simply compliance with a rule book? How much innovation will companies or research labs or schools have if the main attribute of the culture is “compliance?”

Jeff: Hey, you asked me about what the regulators are doing and I responded by describing what is, to my knowledge, the most recent public example of a government body (the SEC) giving credit in an enforcement action for compliance culture. Given the relatively narrow and somewhat technical nature of the charges in that case it makes perfect sense the SEC wouldn’t have a broad discussion of integrity there. But only a few weeks after that enforcement action a top SEC lawyer – in the context of a wide ranging speech that uses “compliance program” and “compliance and ethics program” interchangeably - noted the following with respect to that agency’s expectations of companies:  A strong ethical culture flows from good governance and requires leaders to promote integrity and ethical values in decision-making across the organization. This entails asking not just “can we do this,” but “should we do this?” 

Steve: Yes, they sometimes get it right, but the DoJ has a fairly long history of talking about a culture of compliance. We who care about businesses being sustainably successful need to push back emphasizing what we all want: cultures of integrity or ethics, which include a commitment to compliance.

Jeff: I think we need to separate two issues here.  The first is what types of cultures do we want – and there I agree with you 100%.  The second is what can we expect of the government vis a vis culture and there I think one runs into natural and perhaps even desirable limits.  One limit is practical: the government would not be very good at assessing cultures on a deep level – meaning you’d have false negatives and false positives in many cases.  The second is perhaps more philosophical: the very act of making ethics part of the enforcement calculus turns ethics into compliance.

Steve: OK. So it is kind of good that the government is paying attention to culture because it provides an incentive for organizations to devote attention to culture. But it is kind of bad that an emphasis on a “culture of compliance” could lead organizations down the wrong path. So let’s help: what kind of culture should organizations be aiming toward?

Jeff: Better make that a part two – I have only five minutes left on the parking meter!

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1 comment


Nov 21,2013 09:47

Excellent debate. Steve, I take your point about the phrase "culture of compliance," in the sense that businesses should want to be thoughtful, innovative and competitively aggressive. I would add that this involves more than adding the ethics piece. Ultimately it seems like part of your point is that compliance (and ethics) are a means to an end -- not an end in themselves. With this in mind, isn't a "culture of adherence to laws and regulations" important so long as it is part of a broader culture of dedication to hard work, organizational success and integrity? Is the concept of a culture characterized by "we always play hard, but we play fair" more palatable? And if so, is it harmful if regulators (as opposed to management), when reviewing a program, choose to focus primarily on the "compliance" element? This may draw us into a broader discussion of the merits of metrics, and now my parking meter is running out...