Ethical Leadership: Integrity vs. Compliance Programs
The terms integrity and compliance have become widely used within the realm of management in recent years following the consequences of lapses in various organizations around the world. To begin with, both integrity and compliance programs are set up with the aim of preventing illegal conduct within the organization. The purpose of both programs is similar, but they differ in the approach used in achieving goals. A compliance program may be considered similar to be a set of rules to be abided by within an organization. It may include a set of instructions that an employee is required to adhere to while within the organization.
It may include procedures for carrying out specific tasks with information such as forms to be completed, personnel to grant approval, and such information. On the other hand, an integrity program is built along with the premise that an altered mental perception of members of an organization will encourage integrity within the organization. It is common to find a key component of integrity programs being training programs aimed at changing employee perceptions. The integrity program approach is in favor of a more subtle approach to the issue of employee behavior and does not encourage forcing behavior change.
Through assessing the trends within organizations and literature on ethical leadership, it has been observed that integrity programs perform better than compliance programs. As stated above, compliance programs within an organization take the form of various regulations and regulatory practices. Despite the need to have some form of regulation, it has been observed that excessive regulation is not favorable for the business. In addition to this, it has been noted that all regulation imposes some costs on the organization.
It is therefore presumed that regulation should therefore be avoided unless it promises to keep the best interests of the consumer or the wider public. In the UK, the government set out to reduce unnecessary regulation through compliance programs and, in so doing, developed an assessment technique known as Compliance Cost Assessment (CCA). This technique places emphasis on increased organizational accountability and management over compliance-regulatory programs. This comes in light of the need to quantify and prioritize business compliance costs so as to represent business interests in decision-making.
This gradual shift in the UK from a regulatory environment to a more liberal environment provides some evidence in supporting integrity programs over compliance programs. The main reason behind this shift lies in the fact that, owing to bureaucracy, the interests of the regulators often take a prominent position ignoring the important unheard pleas of the consumer and manufacturer. Through techniques such as CCA, the bureaucrats can be controlled by forcing their participation in this evaluation exercise. Further evidence of the success of integrity programs over compliance programs is found by observing the popular trends within major multinational companies. The practice of cultivating organizational culture is illustrated in the successful merger that saw the creation of SmithKline Beecham in 1989.
The cultivation of organizational culture is a practice aimed at changing perceptions and is best classified within the category of integrity programs. Through this merger of two medium-sized pharmaceutical companies, SmithKline Beecham of the US and Beecham group of the UK were successfully brought together. The resulting company with headquarters in the UK grew to control 2.7% of the global pharmaceutical market by the year 1994.
In the same year, it was also among Britain’s top 5 most admired companies. The success of the company can be traced to the underlying principle behind the merger being the development of a new and strong organizational culture. Among the key factors that the management focused on incorporating in order to gain a competitive edge was a strong set of organizational values.
Evidence in Support of Integrity Programs over Compliance Programs
In the above section, it has been stated that integrity programs appear to perform better than compliance programs. In this section, the discussion will attempt to highlight the reasons for this case. Among the reasons in support of this trend include observation of the actions of large multinational corporations. According to Futures, the main challenge that organizations face is seeing what is currently not being seen. According to this definition, seeing involves three interrelated aspects. First, being observation from the holistic and systems perspective. This perspective allows the organization to witness causal relationships between events and interconnections within the business environment.
This interconnection allows the organization to detect patterns and trends coming into being over time. Using this concept, it is possible to assume that the emergence of these trends within major corporations signifies preference and change in trends. The emergence and success of companies such as SmithKline Beecham, which has a very strong emphasis on organizational values, points to the importance of integrity programs. The strong financial position that this company has maintained over the years provides further evidence that such programs are able to provide direction throughout an organization.
In a similar fashion, it was reported that most employees are likely to find difficulty when discussing their organizational values. This is because the bits of information collected during meetings or from the mission statement is inadequate for raising awareness or reduction of ethical risk. With this in mind, it appears that to achieve lasting behavioral influences that characterize value-based culture, programs that incorporate organizational values should be initiated.
Furthermore, it has also been reported that increased pressure from internal and external regulators, changing social standards, and media are likely to increase pressure on staff and organizations. Owing to these increased pressures, it is likely that the organization will indulge in action that is deemed unethical. This position suggests that the increased turbulence within the business environment requires greater vigilance and the incorporation of a value-based system.
As mentioned in the introduction, both programs aim to reduce illegal activity in an organization that is motivated by specific factors or conditions. First and foremost, the adverse events in the recent past that have seen an increased emphasis on ethical leadership have resulted in the creation of legislation to punish wrongdoers. The Federal Sentencing Guidelines for Organizations require that an organization shall establish standards and procedures for the detection and prevention of criminal conduct.
This requirement should be prepared into a written code of conduct which provides mechanisms for audit that provide a reasonable chance to detect and prevent wrongdoing. The emergence of such legislation appeared to be essential after the serious crisis of the early 2000s involving major corporations. The presence of legislation has led organizations to pursue either some compliance or integrity strategy.
As stated earlier, the best way to bring about the change desired is to change the way people think, and this is best achieved through the use of integrity programs. One shortcoming of compliance programs is their restrictive style does not promote a sense of wholeness, which is essential to bringing about the desired change. It is very likely that an employee may be aware of wrongdoing but lacks any motivation to take action of any kind towards its prevention. Compliance has been found to be directly proportional to the relative magnitude of the penalty for non-compliance.
This position is supported by reports that indicate that in addition to rules, employees need proper training to deal with ethical dilemmas they face in their daily routine. Evidence of this is indicated by the fact all the corporations that suffered from ethical lapses in the recent past were not without a code of ethics. This fact suggests that rules alone are not enough to educate the employees on the importance of ethics, and this education is best handled through other programs such as integrity programs.
Another crucial role that is addressed through either integrity or compliance programs could be the employee orientation that forms the basis behind either program. In the case of compliance programs, the employee is orientated to identify and commit to a specific code of conduct. In this mode of operation, the employee is taught legal terms, contracts, penalties, and punishments that are to be meted out in case of non-compliance.
On the other hand, programs that are aimed at teaching integrity are more value-based. Though the penalties imposed for non-compliance are also detailed, the focus is more towards abstract concepts of respect and responsibility. The driving force within an integrity program seeks to make company values goals to which individuals willingly pursue. This sense of belonging and non-coerced participation is one reason why it is likely that integrity programs perform better than compliance programs.
The reduction of risk is another role that is best handled through enforcement of strict compliance-based programs, especially within categories or sections where the risk factor is higher to help curb the practice among staff. This is in line with the fact that the stiff competition that characterizes the business marketplace can force managers to take risks.
The management may be urged to take risks due to pressure to achieve specified levels or to restore the company to past profitability margins. It is likely that these risks associated with the competition are ill-advised and lack foresight owing to the high level of secrecy. It is advisable to make efforts to ensure that any type of risk-taking within the organization is handled with rational thinking so as to save the company from possible disaster.
Another role of these compliance and integrity programs is to control or limit the responsibility for decisions made within an organization. It was noted that among the reasons behind the financial disasters experienced in recent years has been the manipulation of the corporate form by executives within these corporations. The ability to tap into huge sums of capital within these corporations by the executives and the large number of people that rely on these corporations for their livelihood calls for greater control within the corporations.
It is within an environment like this that the carelessness or greed of an executive or a group of executives leaves a large number of investors, employees, and suppliers in jeopardy, owing to the huge losses. In addition to internal measures, there may be a need to also incorporate external self-regulatory bodies to perform auditing across the entire industry. The large sums sometimes involved and the fact that risk-taking is a part of business suggests that internal controls alone are inadequate.
Another important role that both integrity and compliance programs play in the organization is they provide much-required training and communication. It has been stated earlier in this report that rules alone are not adequate to deter inappropriate behavior among employees. The role of this training is to educate the workforce on relevant industry laws and regulations, organizational policies, and expectations, and generally create awareness on social standards.
Through training, staff can find important information on available support systems, designated personnel who can be of service to them in case they need sound ethical or legal advice. This goes a long way in restoring the staff’s confidence in the legislation that governs the way they carry out their routine tasks. It is possible that there have are occasions where employees continue with illegal activities because they feel powerless or don’t know where to turn to find help. This training can empower employees and enable them to ask serious questions that may lead to responsible and ethical decisions.
In addition to training, the role of fostering communication is also very crucial to the organization. It has been reported that the main difference between a good integrity program and a poor one is the degree to which the organization allows people to discuss with some comfort and literacy about ethics. The managers can help articulate company values to employees and ensure that the process of developing a code of conduct is a continuous process with plenty of dialogue. Through these discussion sessions, the staff should develop skills in dealing with potential problems. This will be useful to curb the trend by members who may want to exploit the benefits attributed to whistle-blowing at the expense of the company.
Another role of these programs can be attributed to the alteration of management perception. In attempting to build an environment of compliance within an organization, there are several factors that have been identified to be useful in the process. These include proactive management as opposed to reactive management. Instead of waiting for problems to arise, the management should consider assessing the situation and identifying potential problems before they arise.
Encouraging value-based decision-making. Though a company may have the majority of employees operating within acceptable guidelines, the weak link may be a reason the company receives negative media publicity. Another way companies can succeed long-term in building compliance is by making efforts to attract and retain the right kind of personnel in the organization. Efforts that ensure the process of recruitment look not only into qualification but the company values as well can go a long way in ensuring the company has the right team.
The promotion of transparency within organizations is also a role that is handled well through integrity programs. Indeed, putting in place a successful ethics program is no easy task and requires a serious effort on the company’s part. There are several strategies that have been found to be useful in achieving positive results. Among these practices is the incorporation of transparency in company affairs.
Transparency refers to a quality that is characterized by openness in decision making, processes, and activities or planning. This openness to scrutiny has led to a situation where high-handed behavior by greedy executives is kept in check. Some of the major financial scandals of recent times were caused solely by a lack of transparency within the organizations. The result was that a small group of individuals was given the power to make very serious decisions without the need to consult or inform any of the stakeholders of their decision.