For my dissertation, I studied the adoption and implementation of the Ethics & Compliance Officer (ECO) position in the US. As I learned more about the ECO, I became aware of the historical evolution of the title. Firms used to have separate Ethics Officers (EO) and Compliance Officers (CO); the ECO was, among other things, an attempt to combine the two roles, but the different identities (and historically different responsibilities) were difficult to shake. As a result, when I went to ECO conferences, I kept running into sessions that debated the relative value of each role, what responsibilities fall under which 'branch' and, of course, which should be dominant within the ECO (ethics or compliance). In short, what I learned is that the compliance function is more external facing, working out the rules and what the firm has to do to comply with them, while the ethics function is more internal, putting in place the policies and practices that, ideally, avoid the need for compliance. For example, if the purpose of the Foreign Corrupt Practices Act (FCPA) is to prevent US firms from paying bribes to overseas government officials, the role of the CO is to communicate to employees what constitutes bribery, what payments are ok and what are not, etc. The role of the EO, in contrast, is to build an ethical culture within the firm so that it becomes second nature to employees that they operate ethically at all times (and do not bribe). The difference also mirrors more of a European regulatory system, which tends to be more principles-based (general guidance in terms of what needs to be done to achieve/avoid a specific outcome) and therefore relates more to the EO position, as opposed to a US regulatory system, which tends to be more rules-based (specific actions that are allowed/prohibited) and therefore relates more to the CO position. The article in the url below highlights this tension by debating the relative merits of each:
"Companies that rely on rules to ensure employees do what they are supposed to can find themselves on the wrong end of a reputational problem. Witness, for example, what happened to United Airlines Inc. when its employees followed the rules to forcibly remove a paid and seated passenger from a flight. United and other examples from the worlds of technology, financial services and automobiles—Uber Technologies Inc., Wells Fargo & Co., Volkswagen AG all come to mind—offer a reminder to all companies to look at their own ethics and compliance policies to make sure they reflect the messages and culture the company wants, according to ethics and compliance firm LRN."
While a rules-based system is more specific and, in some cases, easier to enforce, it also encourages behavior that is inflexible or seeks to bend the rules or find ways around them once they are clearly understood. A principles-based approach, on the other hand, promotes flexibility in search of the ultimate goal (which is emphasized), rather than the means of achieving it (which is not):
"Smart companies understand that foisting a series of rules upon workers won't necessarily result in employees acting more ethically or engaging in less misconduct, said Susan Divers, a senior adviser at LRN. Better for them to structure their ethics and compliance programs to get employees to consider the ethical implications of the decisions they make before they make them, and to take actions that lead to a stronger workplace culture and improved company performance, she said. … While a company needs rules and regulations, Ms. Divers said they don't really work as a motivator or as a guide for how to behave. "Most companies' policies are a nightmare, they're almost impossible to understand if you are not a lawyer," she said. "Most don't say, 'We would like you to always behave ethically, in the right manner, even if it is not mandated by law.'"
In short, the article is arguing for a greater emphasis on the 'E' in the ECO position.
Take care
David
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Rules Aren't Enough to Foster Ethical Behavior
By Ben DiPietro
October 4, 2017
The Wall Street Journal
