Why Companies Must Move Beyond Compliance To Manage With Integrity

By Antonino Vaccaro (IESE Business School)

When crypto exchange FTX imploded late last year, inevitable questions related to compliance ensued. How did co-founder Sam Bankman-Fried get away with such obvious irregularities? Why were the egregious ethical lapses not detected? Where were the corporate controls?

In the 20 years since energy giant Enron collapsed, compliance-related issues have moved to the top of many boards’ agendas (though not everyone’s, as FTX and a host of other recent examples have shown).

That movement is a good thing, but it’s not enough. Companies’ approach to compliance must move away from the idea that it’s a matter of preventing fraud. Instead, corporate compliance must be aimed at managing with integrity — that is to say, honoring individuals’ moral, ethical and spiritual values. A culture of integrity is a key element for the proper functioning of organizations because it makes individuals better people.

Few would argue with the idea that organizations should bring out the best in their employees. To put this into practice at an organizational level, I’ve developed an operating model called the Compliance Integrity Management Approach (CIMA). This model reimagines compliance, engaging critical stakeholders — both internal and external — and extending its reach beyond its original goals of identifying risks and mitigating them.

The key components of this model are:

• Putting people at the center. Companies must give primary importance to the wellbeing and integral development of people (employees, customers, partners). This new model can help employees develop at a personal and professional level, but companies have to care about this.
• Empowering all employees. Compliance is often associated with the legal team or the board of directors. The CIMA model proposes giving all employees responsibility on issues tied to the integrity and legality of company activities. The entire workforce should participate in compliance initiatives.
• Providing specific training. Does your company’s learning and development plan include sessions on compliance? Most don’t. Companies should provide training that facilitates the understanding of the importance of organizational ethical values and integrity.
• Setting an example. Here the role of managers and leaders is key. Ethics must be put into action, in the daily practice of values and respect for codes of conduct, and in the example provided by leadership.
• Including external stakeholders. Communications efforts must help external stakeholders – customers, suppliers and others – to understand the importance of corporate values, ethics and integrity. They should also be able to verify and model the example of the best practices of an organization that acts ethically and responsibly.
• Creating communication channels. In order to report problematic situations and/or suggest points of improvement in business practices, formal and informal communication channels must be open and accessible.
• Spreading the message. Companies should craft a clear strategic and commercial positioning that considers issues of integrity, ethics, and social and environmental responsibility in an articulate and tangible manner.

The fundamental idea is that organizations that truly consider the value of ethics in the management of their decision-making processes can provide critical stakeholders, both internal and external, the opportunity to become better individuals. Compliance-driven norms and routines can help employees acquire virtuous habits, understand the importance of corporate values, and practice them in daily professional life. Individuals become proactive participants who contribute to the continuous improvement of the compliance system and who support a business culture based on integrity.

The model goes beyond taking care of internal matters. For example, according to this approach, companies have a duty to fix situations in which compliance norms are unclear – rather than ignoring the problem or taking advantage of the ambiguity. For example, a research team I coordinate is currently analyzing the cosmetic sector, which is paradoxically facing reliability issues in the quantification of sun protection factors (SPFs). The situation might confuse consumers and undermine their trust in the market. The CIMA model suggests companies go beyond strict compliance, working at market and institutional levels to establish more transparent and reliable international norms.

There are myriad sectors in which compliance can dramatically improve employees’ working conditions, creating safer and healthier environments while avoiding harmful practices. Toxic working cultures were blamed, in part, for the Great Resignation. The idea is to guarantee more humane working conditions and to guide employees to become better professionals as well as better individuals and citizens of the world.

Antonino Vaccaro is a professor of Business Ethics at IESE Business School. He is director of IESE’s Center for Business in Society and Observatory for Responsibility and Sustainability in Cosmetics, and author of the book Compliance Beyond Compliance: Managing Organizations with Integrity recently published by McGraw Hill.