When boards clearly indicate to company leadership that they must actively engage in the area of ethics and compliance, those expectations cascade through the organization and, ultimately, translate into action, according to a new report published by LRN. Additionally, ethics and compliance considerations play a larger role in key business decisions when senior executives know they will be held accountable for their behavior by their boards, the research found.
When boards are known to hold leaders accountable for misconduct, 51% of their organizations actually disciplined or terminated an executive or high performer in the past year. In contrast, only 18% of organizations whose boards are less engaged in ensuring accountability took such action in the past year.
Better Positioned to Meet Future Challenges
Boards that supported ethics and compliance in 2020 were more likely to build stronger ethical foundations, better positioning their organizations to meet future challenges and deliver outcomes consistent with society’s growing expectations that businesses perform ethically. This is important in an era where culture is a key driver of business performance — that is, the fact that “why a company exists and how it operates is as important as what it does,” the LRN 2021 Ethics & Compliance Program Effectiveness Report, says.
Surveying nearly 630 ethics, compliance and legal executives and experts at companies and organizations with at least 1,000 employees, LRN researchers looked at three measures of board engagement in ethics and compliance (E&C) programs: Championship (in a time of crisis, did the board actively support and effectively oversee the E&C program?), open communication (does the board enable open, direct, two-way communication with the E&C function?), and accountability (does the board play an active role in holding senior executives or high performers accountable for misconduct?).
Notably, findings in the areas of championship and open communication are encouraging:
- 79% of the professionals surveyed agreed that their organization’s board of directors effectively supported their E&C program during the Covid-19 crisis;
- 77% of respondents indicated the E&C function has the ability to raise issues or concerns directly to the board of directors;
However, in the critical area of organizational justice, boards need to do a better job of holding senior leaders accountable on the same basis as everyone else in the organization, the research found.
There has never been a more effective system to shape and direct behavior in an organization than culture. “A well-positioned board in this new world of work is one that views the health, sustainability, and ethical foundations of its culture as strategic priority,” according to the report.