Ethics and Compliance: Two Sides of the Same Coin

Shelly McGough

Associate Editor

Loyola University Chicago School of Law, JD 2019

Most major American corporations develop and implement an ethics and compliance (E&C) program.  However, too often, the ethics division of these programs falls to the wayside, with companies putting more focus on legal compliance rather than creating an ethical corporate culture.  While it is true that compliance can technically function without an ethics component, a robust ethics program can be an extremely efficient way for a company to promote legal compliance, as well as consumer trust and loyalty.

Ethics Takes Center Stage

Corporate ethical codes have been under intense scrutiny in the past few years, perhaps beginning with the 2008 financial crisis. Consumer fears of corporate scandal have only grown since then, and every year, more consumers demand transparency and ethical business practices from those businesses they choose to support.

And yet, it seems that there is a new corporate scandal unraveling every day. Just to name a few: Volkswagen engineers devised software intended to defeat carbon emission rules in the USA and the European Union; retail bankers at Wells Fargo fraudulently opened multiple accounts for retail customers without their knowledge or permission; and pharmaceutical manufacturer Mylan, with a monopoly on the EpiPen, increased the price by 450% with no regard to the ability of vulnerable consumers to purchase the life-saving drug.

These companies no doubt had well-implemented compliance programs. However, without a complementary ethics program to encourage good behavior in employees, scandals will likely continue to plague corporate America.

Distinctions between Compliance and Ethics

It is very important to note the distinctions between ethics and compliance, because the two are often treated as synonymous (hence “ethics andcompliance” programs).  Compliance is actually a much simpler concept to understand than ethics. Compliance means following the law, whether that be statutes, rules, or policies.  The government requires corporate compliance; it is the responsibility of upper management to get all employees to comply.

Ethics, on the other hand, are moral values that direct a person to make a conscious choice between right and wrong.  Interestingly enough, it is entirely possible to be ethical without being compliant.  For instance, during the course of employment, an employee may have ethical objections to certain federal regulations pertaining to his work, and thus chooses not to comply.  In the end, this may have been the “right” thing to do, but that employee may be held responsible for the company being non-compliant.  More likely, however, a strong sense of personal ethics will often result in legal compliance.

Consequences of Unethical Business Practices

Despite the fact that ethics result from personal moral values, unethical business practice cannot typically be laid at the feet of a single individual.  Such misconduct often involves tacit, if not explicit, cooperation of others and reflects the values, attitudes, beliefs, and behavioral patterns that define an organization’s operating culture.  Ethics, then, can be organizational as well as personal. Corporate leaders who fail to provide ethical leadership and to institute systems that facilitate ethical conduct share responsibility with those who conceive, execute, and benefit from corporate misconduct.

Implementing Ethics Programs

Thus, if they are not already doing so, companies need to work on implementing ethics programs to prevent, detect, and punish ethical misconduct.  The Federal Sentencing Guidelines are just another reason to enact such a program.  Under these standards, which Federal judges use in sentencing, a company that is convicted of a federal crime will face extraordinarily large fines. But if a company self-reports, cooperates with the government, and has an effective E&C program, it receives a 95% reduction in fines.

A successful ethics program does more than just outline concepts of good behavior.  It also communicates expectations and requirements, has buy-in from all levels of management (including the board of directors), and develops measurements to determine if ethics are being maintained and yielding the desired results.

Ethics and Compliance Together

There is no question about the necessity for a strategy of legal compliance in an organization.  After all, employees, and even managers, can become frustrated by the complexity of today’s legal environment.  A legal compliance program can eliminate a lot of this frustration and uncertainty by providing strict guidelines for employees to follow.

But compliance is by no means an adequate solution to ethical issues that arise during the course of business.  Just as conduct that is ethical is not necessarily legally compliant, conduct that is legal may be extremely problematic from an ethical point of view.  The goal for an efficient E&C program, then, is for ethics and compliance to work together so that ethical conduct is legal, and vice versa.