Tone at the Top: The foundation of an effective compliance program

CSeedling growing on mossOf late, the corporate sector is abuzz with the need for an effective compliance and ethics programs due to the rise in the number of frauds and consequent regulatory actions. Numerous policies around anti-corruption, whistleblowing and ethics code attempt to ensure compliance with the changing legal environment. But is mere drafting of policies good enough to ensure compliance? Does it really change the ethics environment in a company, especially for a country like India?

A survey by EY titled ‘Bribery and Corruption: Ground Reality in India’ which comprised views from top officials of companies in India highlighted that:

  • 90% of the respondents stated that their companies have an anti-bribery policy in place
  • 76% of the respondents had a whistleblowing mechanism
  • Around 34% reported that their organizations do not conduct anti-bribery and corruption training for their employees
  • Over 64% stated that they were aware that companies are involved in corrupt payments and manipulation of records
  • Nearly 50% said their companies have lost business to their competitors because of latters’ unethical conduct

So, the question remains – why do companies find it difficult strike a balance between business and compliance? Is it the age old ‘this is how it works in India’ attitude? How do you encourage an ‘ethical growth’?

The simple answer is ‘Tone at the Top’. The attitude of the management – CEOs, MDs, Compliance Officers, Sales Directors, General Counsels et al, is a key determining factor which defines the culture of the organization.

“Culture is defined as the way things are really done around here (in the organization)….. way we do things no matter what they tell you in trainings. Culture is shaped not by listening to lectures, not by watching training videos, but by watching people act.”  FBI Director James Comey

The ‘Tone at the Top’ is the foundation that makes a compliance program ‘effective’. Management needs to own up the tasks and take active interest in devising and implementing compliance programs. They need to ensure that every employee, every agent and every representative of the organization is not only aware of ethics and consequences of non-compliance, but also witnesses in day to day actions of its leaders.

Even the regulators have stressed on this aspect through their guidelines and memos stating that a company’s “directors and senior management (should) provide strong, explicit, and visible support and commitment to its corporate policy against violations of the anti-corruption laws and its compliance code”.

Management needs to understand the consequences for them individually as well. Industry reports as well our own research suggests that since 2009, over 110 individuals (globally) have been prosecuted under Foreign Corrupt Practices Act (FCPA) as against 68 companies. Out of the 30 individuals prosecuted in last 3 years:

  1. 12 were CEO / MD / Founding Chairman
  2. 9 were President / Vice-Presidents and
  3. 2 were General Counsel / Head of Internal Audit

Three of the above were imprisoned for 8-9 months with probation of 36-60 months while others are either awaiting sentencing or are declared fugitives.

Many have learned the hard way but it is never too late for others to learn from their mistakes. As a result, India corporate leaders should aim to lead by example and set the right tone for all employees across the board.


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