Why and how should companies pursue a culture based on ethics

Author: Enrique Aznar, Lawyer & Compliance Officer. Professor at IE Law School. 

Introduced in 2010 in Spain, corporate criminal liability induced many companies to pursue a compliance-based culture. Yet rather than simply avoid liability, companies should actively incorporate compliance and ethics into their organizations to successfully engage stakeholders and contribute to a better society.

On January 28, the IE Foundation, IE Law School and the Elecnor Foundation came together at IE University to explore the topic, “Compliance in times of uncertainty: How can SME’s promote a culture of compliance?” After a brief presentation on ethical culture in SMEs, María Hernández, Partner at Eversheds Sutherland and Director of the Master in Global Corporate Compliance at IE Law School, moderated a debate between compliance officers from Elecnor, Iberdrola and GE. During the debate, the speakers discussed how large companies could help SMEs improve compliance plans, the convergence between compliance and social responsibility, and the role of leaders in this process. The event also invited attendees to reflect on whether we should pursue a compliance-based culture or, rather, an ethical culture.

Unethical behavior: the roots of compliance

Unethical corporate activity is undoubtedly one of the most significant problems faced by boards and managers. This type of activity negatively impacts not only the organizations themselves, but also their employees and society as a whole. What’s more, it is a difficult issue to solve.

Since the beginning of the century, in response to various corporate scandals, regulations have been progressively introduced with the aim of minimizing the risks of activities that harm companies and society. In 2010, for example, corporate criminal liability was introduced for the first time in Spain. Organizations can exempt themselves from criminal liability if effective organizational and management models, including monitoring and control measures, are in place prior to the commission of the offence. Clarifying this point, the Spanish State Attorney General’s office (Fiscalía General del Estado) advised that organization and management models should not be implemented purely to avoid corporate criminal liability, but to promote a truly ethical business culture.

All companies must accept their role in society and face their responsibilities by striving not only to avoid liability, but to create work environments that embrace ethical cultures and contribute to a better society

The culture of compliance

With this regulation, a new concept was born: the culture of compliance. Without a specialized background, compliance can be complicated to understand. However, no matter their size, all companies must accept their role in society and face their responsibilities by striving not only to avoid liability, but to create work environments that embrace ethical cultures and contribute to a better society. As such, it is much more interesting to consider creating value-based corporate cultures than to expect organizations to comply purely to avoid punishment.

The basis of an ethical corporate culture consists of a set of fundamental ethical values, collected in a code of ethics, matched by strong ethical leadership. Discovering these values is not an exclusive function of management. Instead, the process should become a co-creative exercise that involves everyone in the company engaging in meaningful and continuous dialogues between different stakeholders—the management team, the board of directors, employees, customers, investors, suppliers and community members—encouraging everyone to move in the same direction. A values-based corporate culture contributes to its employees’ personal development and evolution, and to the business’ prosperity and social impact. It offers all organizations a competitive advantage.

Preparing for a sustainable future

It is vital we encourage companies to prepare for this new environment and develop cultures based on ethical, pragmatic and emotional values such as empathy, coherence and trust, with respect for their employees and society. We will provide them with the necessary tools to ensure they can remain sustainable amid the difficult times that humanity is facing.

A culture of compliance cannot solve the major problems we face on its own. These obstacles require ethics-based solutions that evolve through co-creative dialogues between the aforementioned stakeholders. They all have a vision of what business and society should—and could—become. What will we build together?

Enrique Aznar is a lawyer, Compliance Officer and Professor at IE Law School, IE University. Former Chief Ethics & Compliance Officer at Nokia Siemens Networks; former Head of Corporate Governance & Compliance: Chief Integrity Officer at Millicom International Cellular S.A.; former Chief Compliance Officer at VimpelCom; former Chief Values and Culture Transformation Officer at VEON           

Note: The views expressed by the author of this paper are completely personal and do not represent the position of any affiliated institution. This article was published in Legal Business World.