Economic uncertainty. Unprecedented sanctions. ESG backlash. These are just a few of the clouds that hang over the heads of ethics and compliance professionals as they head into 2023. But as Erica Salmon Byrne, newly appointed CEO of Ethisphere, notes in this interview, within every challenge lies an opportunity, and the coming year may be a great one for business integrity.
How would you say the events of 2022 impacted the predictions we had for the ethics and compliance space time last year?
Some of the biggest trends ended up being geopolitical pieces that happened during the course of the year. Response to the events of January 6th ended up taking up a lot of people’s time and energy as they thought about the corporate fallout from that activity. The Russia-Ukraine conflict also took up a lot of people’s attention in the first part of 2022. The lingering impact of the pandemic. Return to work, hybrid workforce, virtual workforce – all of those pieces. Many of the things that were happening in 2021, particularly pandemic-related issues that I thought would be more behind us than they were, ended up carrying over into 2022.
One of the things that we learned in 2021 was that you can effectively conduct remote investigations as long as you are well set up to do so from a staffing, structure, and process perspective. That carried us into 2022, and I think quite honestly is going to carry us even further.
How do you feel about 2023, from an ethics and compliance perspective? More headwinds than tailwinds?
There are a couple of interesting things that I will be keeping an eye on as we move into 2023. One is the changing demographics of the workforce, and what that is going to mean for companies as Boomers begin to retire and Gen Z begins to graduate college. That is going to be a generational shift akin to what we experienced when the Millennials entered the workforce. As we think about the way to train an audience, communicate with an employee base, and set the narrative around values and principles, all of those things are going to require more time and energy from teams. Ethics and compliance are going to be a part of that conversation.
If we think about what we have seen companies doing the current hiring environment—whether you call it the Great Resignation, or “quiet quitting,” or something else—companies that can legitimately tell the story of their values are succeeding more effectively than other organizations in finding, retaining, and developing the best the best talent.
If you’re somebody in the ethics and compliance space, really think about you know you align your work with not only your company’s risk profile but also its stated values and mission. Have you deliberately adopted that into the organization’s narrative, or are you more focused on talking about regulations?
Also, we are finally, thankfully, starting to see companies internalize research from other disciplines into the ethics and compliance dialogue. Whether it is what we know about how adults learn, or what we know about communication modalities, or some of the work being done on psychological safety, there’s so much good research out there for ethics and compliance professionals to deploy, and I am seeing a tremendous appetite for that across the community. That is a wonderful tailwind because at the end of the day we’re all dealing with people, and there’s no reason why you can’t talk to your learning and development team and learn what it is they know about how to design effective training as you are thinking about how to express a new regulatory principle.
Headwinds are going to be economic. Nobody knows where we’re headed in terms of the economy and a possible recession. Supply chain disruptions continue to be a challenge. So there are definitely some serious headwinds with some longer-term generational tailwinds behind the backs of ethics and compliance.
Did you expect the ESG backlash that we saw this year, especially as politicians began to decry “woke capitalism?” What do you make of all that?
ESG, as a term, I would like to separate from the concept of a well-run sustainable business, because before ESG it was CSR (Corporate Social Responsibility) and before that it was corporate philanthropy, and before that, it was foundational giving. There has always been this idea that a company is bigger than its brand, and that there is a relationship between the corporation and the stakeholders to whom it matters. You can define those stakeholders in a lot of different ways. You can think about the stakeholders in terms of employees, shareholders, the communities in which you’re operating, the value chain partners with which you’re partnering, the products you’re bringing to market, and the IP that you’re putting out on the Internet. There are all of these different ways in which a corporation as an entity interacts with various beings.
“In order for corporations to succeed long term, they need to spend time thinking about their impact on those broader stakeholder groups and how to benefit from that impact.”
To me, it’s less about which acronym of the moment we happen to be using to describe that concept. It’s more about the reality that in order for corporations to succeed long term, they need to spend time thinking about their impact on those broader stakeholder groups and how to benefit from that impact.
That’s really the heart of it. It’s not really about divesting from fossil fuels. It’s about whether the company’s stakeholders feel like they are a match with the work that company is doing and with the way that company exists in the world. Or do they feel a dissonance? Because if there’s a dissonance, the company’s going to stumble.
To borrow language from Larry Fink, who I think is looking at these issues the right way, there’s a social license to operate, and when a corporation loses that license, for whatever reason, then at that point it becomes unsustainable. Not in the environmental sense, but in continuing ongoing operations.
So, of course, there was going be a backlash because the way that everybody jumped into ESG, like it was going to solve all of our problems, naturally made it an easy target. But the concept, no matter what acronym describes it, is fundamentally sound. And at the end of the day, the companies that look at ESG criteria and frameworks and express their version of that, and how they are going to engage stakeholders, and preserve that social license to operate…those are the ones that are going to be left standing in the end.
ESG itself, there are pieces of it that are vastly undefined. And when you have a vastly undefined acronym grabbing onto all the concepts of that social license to operate, you’re going to find holes in the theory. There are so many different ways for a company to look at that social license to operate and say, how do we preserve this? That’s where the analysis really needs to be, because otherwise you can get lost in the noise, and when you get lost in the noise, people come for you.
The Russian invasion of Ukraine created a major ethics & compliance moment as organizations rapidly pulled out of the Russian market. What lasting lessons can be learned from all that?
I think the defining piece of 2022, from an ethics and compliance perspective, is going to be the response to the Russian invasion of Ukraine in terms of the way that companies suddenly had to review their suppliers. It was a rapid response to a geopolitical event that tested a lot of companies’ systems: Do we know the extent to which we had exposure to Russia? How up to date is our politically exposed person screening? What sort of disclosure activities are we engaging in? If we have employees in Russia, how should we respond to the needs of those individual people who are living within that jurisdiction?
All of those pieces required the teams’ skill sets to be brought to bear on how to think about risk, supply chain exposure, making sure disclosure processes are up to date, and how to make the decision whether or not to withdraw from the market.
This is a situation where a company needs to have practiced values-based decision-making, and ask, what are our intrinsic values, and how are we going to think about big challenges within the framework of our values as an organization? How do we communicate those decisions to the rest of the world, and explain why we have chosen this particular nuanced path through a series of challenges?
And then, what do you do on the back end? I mean, the logo for the entity that took over Starbucks in Russia looks an awful lot like Starbucks, right? You make that decision to leave and suddenly you’ve got McDowells in Moscow as opposed to McDonalds. If you haven’t done that kind of drill as a leadership team and as a Board, it’s time to do it now, because the need to rapidly respond to the crisis at the moment is only going to accelerate.
“You have to figure out your values, think about how they exist within your ecosystem, and then make sure you’re practicing them over and over again at all levels of the organization.”
Are there other major developments in the world you’re seeing now (e.g., natural disasters, disease, political upheaval) that we might not normally think of as ethics & compliance situations, but could create effects that themselves require the expertise of the ethics & compliance department?
It is exceptionally company dependent. The best ethics and compliance professionals, in my opinion, are the ones who have spent a fair amount of time really understanding the companies they serve. Where are they operating? What are their core audiences? What does their core supply chain infrastructure look like? Because those are the things that are going to tell you that you might need to go beyond posting something on Twitter that you’re thinking of the people of a certain country, because you have five critical suppliers operating out of that region, and you need to make sure that the way in which your supply chain is going to be impacted is fully understood and thought through.
Make sure that you are well coordinated with the other control functions so you have a holistic view of how the company is going to make decisions when the next tornado comes through the United States, for example. Is this something you need to respond to? Or is this something that you have less exposure to, and can experience it as a person instead of as a company?
Those are the things that I would encourage people to think about as we move into 2023. As we look at the literal physical landscape, extreme weather events are going to become more common. And so, not only do we think about our responsibility as corporations to address those issues, to the extent it fits your value chain decision-making process and your social license to operate. Those are the things that that people need to make sure that they’ve really got their arms around in advance. It makes it makes the response easier if you’ve done the pre work.
Confidence in public institutions is eroding, and even trust among people is at a lower point in the U.S. than it has been for some time. As we head into 2023, can you speak to the importance of values-based leadership as a way to create value, and as a way to build trust?
There’s been some interesting analysis around the Edelman Trust Barometer, and the extent to which people grab onto it as a piece of truth. I would say any data set has its inherent flaws. There is no one magical data set that we should all be using. But the Trust Barometer is interesting in terms of some of the trend lines, and some of the meta-level things that they identify.
Trust erodes when what you see on the surface is not what is happening behind the scenes. Fundamentally speaking, that is the place where people start to lose trust in a person, an institution, or a company. Companies that have taken the time to do a values exercise—to figure out what motivates them to get up in the morning, to find what is their purpose for existence, and then, importantly, lives according to that work—that’s how you rebuild trust. When you aren’t honest about your motivations, that’s where you lose trust. Values-based leadership is absolutely key to reinstituting that trust, but you have to do the work to know the values first, and they have to be values you can live by.
That is the challenge for a lot of organizations. Values-based leadership is not a one and done exercise. You have to figure out your values, think about how they exist within your ecosystem, and then make sure you’re practicing them over and over again at all levels of the organization. We see this all the time in our culture data, that the delta between employees who say their leadership walks the walk and talks the talk—leadership is saying all the right things, significant questions exist as to whether they’re doing the right thing—is 10 or 12 percentage points for most organizations. Putting the time in to do that is how you rebuild trust.
“There are lots of partnerships that you can use across the business that will augment your team’s ability to get their jobs done.”
There are troubling signs of economic turmoil, including potential recession, on the horizon. When times get tough, belts tighten and budgets get cut. How can ethics and compliance programs make their case to maintain funding even against economic headwinds?
There are three things that I would point to on this. The first is looking at the company’s stated ESG goals and specifically identifying places where the work the compliance team is living within that framework and supporting the overall goals that the company has set. ESG investing is still the largest category of investing out there and the fact of the matter is corporate behavior tends to follow the money. So, really think about the goals your company has set, and how the work you’re doing supports those goals.
Let’s say that one of the company’s goals is related to preventing human trafficking in the supply chain. You know something that really supports preventing human trafficking in the supply chain? Anti-bribery and anti-corruption programs. They fit together like a glove, so think about how your anti-bribery and anti-corruption controls program support those anti-human trafficking goals. That is a way to make the case against potential cutbacks.
The second thing is making the case to those who might be looking at cutting your budget that there are lots of ways in which you are mitigating the risks that the company faces. Use your risk assessment to make that case accordingly and show how much you understand the business.
The third piece is to get creative. There are lots of partnerships that you can use across the business that will augment your team’s ability to get their jobs done. For most organizations, the compliance team is not going to be the first place somebody tries to cut, because those teams are pretty small already. Which makes working with other control functions even more important.
How’s your relationship with corporate communications? Human resources? Environmental health and safety? Internal audit? IT? Your ESG team? Maximize those connection points and using those teams as extensions of yours so that you’re all working together. That’s the way that you keep all the boats afloat in spite of the turmoil.
Erica Salmon Byrne is the CEO of Ethisphere, where she has responsibility for the organization’s data and services business and works with Ethisphere’s community of clients to assess ethics and compliance programs and promote best practices across industries. Erics also serves as the Chair of the Business Ethics Leadership Alliance and works with the BELA community to advance the dialogue around ethics and governance, and to deliver practical guidance to ethics and compliance practitioners around the globe.