Best Practices

Key Questions to Ask about Tone at the Top

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“Tone at the top” is a term that we in the compliance community scatter liberally throughout our discussions of corporate compliance. Often, however, the term is used without really analyzing its components or nuances and – more importantly – how it is achieved. We aim to dig more deeply here.

Broadly, “tone at the top” is how an organization’s leadership creates an ethical atmosphere that inevitably cascades throughout the organization – for good or not so good, as the case may be. For example, one company’s management may emphasize (in both word and deed) anti-corruption compliance, safety, and sustainable business. Another company’s management (usually through less immediately obvious actions than words) may disregard or even show disdain for certain values articulated in the company’s code of conduct. Employees at each company will process these differing examples of “tone” and, in most cases, respond accordingly.

The UK’s Ministry of Justice has taken a strong stand on the importance of “tone” with respect to anti-corruption compliance: “Those at the top of an organization are in the best position to foster a culture of integrity where bribery is unacceptable.” The Ministry offers: “top-level management commitment to bribery prevention is likely to include (1) communication of the organization’s anti-bribery stance, and (2) an appropriate degree of involvement in developing bribery prevention procedures.”

What does it mean in practice?

Management might consider the following questions when reflecting on how to set an appropriate tone at the top:

Does management lead by example? It is common sense (but bears repeating because it is all too infrequently ignored) that senior executives will do little to set an appropriate tone of respect for compliance if they themselves seek ways to circumvent compliance policies and procedures. Leading by example involves more than simply complying, however. It also means being visibly supportive of those who create and implement compliance policies, processes and procedures, as well as the controls themselves. These leaders understand that compliance is best achieved holistically, by finding ways to integrate a commitment to ethical behavior with the company’s underlying business focus. Companies where management is affirmatively leading by example often have boards of directors that actively emphasize and oversee doing the right thing.

Does management communicate often – and consistently – about compliance? If senior executives are focused on and genuinely value compliance, the issue will arise as a natural part of both formal and informal communications with staff at all levels. For example, do senior executives regularly communicate with employees about compliance issues that may appear in the press, and draw lessons from those reports? In ‘normal course of business’ or operational discussions with employees, is there a compliance element that he or she interjects into the discussion to show the linkage and to emphasize that the company pursues only good (compliant) business.

Senior leaders must also be careful not to inadvertently send mixed signals to staff. A classic example is stating, on the one hand, that the company’s reputation (as buttressed by its compliance program) is of paramount importance and then separately communicating, on the other, that bonuses will be based solely on sales and margin. Most employees in this situation will take away the message that the numbers trump all other considerations.

Does management act fairly upon reports of misconduct? Employees won’t report conduct if they feel the report won’t be acted upon by superiors or, worse, that they might be retaliated against. And nothing serves to undermine the work of a chief compliance officer (CCO) more than the favored VP Sales caught “red handed” in a clear policy violation who is given creative discipline by the CEO – falling short of the termination action directed in the policy on facts like these, and as recommended by the CCO.

Does management reward and support integrity? Do employees have confidence that when they are unable to make a sale because of the company’s anti-corruption compliance policy, for example, that this will be viewed in the proper context – essentially the same as if that sale was not possible because the purchasing company was in bankruptcy or other dangerous condition? How does compliance play into decisions regarding promotion and compensation? Do senior leaders “put their money where their mouth is” by providing adequate resources to the compliance function?

Does management periodically promote assessments by others regarding its commitment to compliance and the effectiveness of its “tone”? On a periodic basis, management should test (through anonymous surveys) how its “tone at the top” actions and words are being received by employees, and the perceived consistency of its actions with the tone it aims to set. This includes addressing whether the messaging around company priorities, strategies, and processes support the overall compliance program or undermine it. If the message is not the right one, or is not being clearly understood – make changes.

Common sense supports the advisability of addressing questions like those above head-on. The critical point? Management must be conscious of the effect that its words and deeds have on the actions and attitudes of employees throughout the company, and project a positive “tone at the top” that supports only good business.

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