Ethics & Compliance Supporting Strategic

Written by Sally Bernstein and Susan Portin

Sally Bernstein and Susan Portin of PwC share their insights into the coming “Megatrends” that companies will face over the next three to five years, and how they will play a role in global compliance, governance and ethics programs.

It’s no easy feat to be successful in today’s complex and rapidly changing world.  Over the next three to five years, we anticipate that an increasing pace of significant changes will affect economies in new ways.  We see continued evolution of existing trends into “Megatrends” unfolding quicker and colliding in ways that will ultimately forge a global business environment that is quite different than the one we see today.

PwC has identified five “Megatrends” that are important to consider when thinking about how companies position themselves for future success. They include demographic shifts, shifts in global economic power, accelerating urbanization, resource scarcity and climate change, and technological breakthroughs.  These trends were confirmed when we asked 1,300 company leaders in our 2014 Global CEO survey: “What does the future hold?”

Four-fifths of them said they believed that technological advances such as the digital economy, social media, mobile devices and big data would be among the most trans-formative trends over the coming five years. More than half also pointed to demographic fluctuations and global shifts in economic power.

We believe that there’s a linkage between ethics and compliance and the ability of companies to drive business strategies designed to help them adapt to this complex, rapidly changing business climate. We also have seen a direct correlation between the organizations identified by Ethisphere as among the “World’s Most Ethical” and strong business performance.

In PwC’s 2013 State of Compliance survey, “strategic risk” was in the top three most important focus areas for the future.  Why did strategy jump into the top three for future risks?  We believe this reflects a growing recognition of the critical role ethics and compliance plays in achieving future strategy.  How can organizations achieve their strategic business objectives if they don’t address the risks to achieving that strategy?

For example, companies expanding into new markets need to navigate the complexities of operating in multiple geographies with differing local and regional rules and regulations. To be effective to-day, these companies should enable their compliance programs in order to avoid serious missteps that can seriously under-mine their business strategy.

When thinking about how ethics and compliance contributes to strategy, consider the following two trends identified in the CEO survey:

Technological change: The digital revolution has given birth to a new generation of consumers who want ever more accessible, portable, flexible and customized products, services and experiences. They expect to move seamlessly – in real time – between the physical and virtual worlds. And they’re prepared to disclose quite a lot about themselves to achieve their desires.

The flip-side of this is that privacy and confidentiality become even more critical concerns for companies, a conclusion confirmed by the PwC’s 2013 State of Compliance survey which identified these as top risks.  Building a brand on strong compliance structures should en-able the business to deliver the products and services that customers want in the way that protects their privacy and the confidentiality of their information.

Demographic shifts: According to the CEO survey, 63% of CEOs are concerned about the availability of key skills and 58% of CEOs are worried about rising labor costs in emerging economies.  The fight for the best talent can also be influenced by building an ethical culture. Today’s and tomorrow’s talent are more attuned to social issues and value a firm that has built a reputation as social and ethically sound.

Companies that not only talk about integrity and ethics but which also consistently reinforce their words with action should be well positioned to succeed in today’s dynamic and complex environment.  These companies:

• Act consistently with their values, mission and vision every day in almost every way — it’s integral to their brand identity;
• Believe in facing risks head-on, but they are strategic about prioritizing their mitigation efforts;
• Understand that living their values is a competitive advantage when it comes to attracting and retaining good people;
• Clearly communicate to their various stakeholders that they can be trusted and relied upon to conduct business ethically;
• Know that they will protect their brand and bottom line by implementing and enforcing policies and procedures, which reinforce ethical business practices;
• Take advantage of new technologies to enhance the level of visibility across their global business so that they can identify and address issues before they become crises; and
• Emphasize effective collaboration among those with functional roles in the ethics and compliance ecosystem in order to drive desired behaviors, communicate appropriate messages, and promote consistent action.

In sum, there’s a clear link between the “Megatrends” changing our business environment and the evolution of ethics and compliance programs in companies. The commitment to ethics and compliance rigor is a hallmark of a resilient organization that can succeed in driving its strategies while navigating the complexities of the current business environment globally.

Author Biography

Sally Bernstein is a Principal in PwC’s Risk Consulting Advisory practice in Boston. She brings over 20 years of diverse experience providing advisory services to clients. Susan Portin is Strategic Risk Management Advisor at PwC in Boston.