How to Approach Ethics and Compliance Benchmarking
Benchmarking helps organizations understand where they stand in their compliance journey, improve business practices, and manage ethics and compliance risks effectively.
While some executive roles have very clear goal posts (you either hit the revenue goals or you don’t; profitability is achieved, or it is not) it is not so clear-cut for an Ethics and Compliance leader.
The goals are broader, and they may shift based on events in the market and changing guidance from regulatory bodies. The things that most easily produce data are negative proof points—the amounts of regulatory fines, the costs of lawsuits, employee attrition rates, and other issues. Relying on such numbers alone is never an optimal solution because it fails to contextualize the organization’s experience against any kind of meaningful comparison. Here is where ethics and compliance benchmarking can help.
The Need to Understand the Present and to Set the Course for the Future with Compliance Benchmarking
Ethics and compliance programs can suffer from a lack of data. If a program were to be perfectly effective there would be:
- no regulatory enforcement or penalties,
- no substantiated internal investigations,
- no losses from misappropriation of assets,
- no reputational blemishes from unethical behavior.
Without any data to show how well the program worked, one could cynically argue that the inherent qualities of an organization’s culture might have prevented bad things from happening, or every one of the organization’s employees is expert at avoiding risks, not at all susceptible to pressure, and never makes a mistake. Neither the perfect corporate compliance program nor a perfect employee population are reality.
Every ethics and compliance leader must determine what to prioritize and how to select the best path forward, given limited investment resources. As a result, there are essential questions that every ethics and compliance executive must answer:
- How do I ensure that I am correctly identifying priority issues or tasks and setting the right direction for my company?
- How do I align the C-suite, the Board, and my internal partners around the priority issues and program initiatives?
- What actions do I need to take to ensure that my company’s ethical culture, integrity, transparency, and risk mitigation is competitive with other companies that are targeting the same employees, customers, and investors?
None of these questions can be answered with confidence, authority, authenticity, or accuracy without the aid of relevant data. Benchmarking is the best way for an organization to obtain and present that data, as well as to understand where it is on its journey to compliance excellence, improve how it does business, and manage its ethics and compliance risk.
And, if your organization is called before regulators, is your ethics and compliance program defensible? In the U.S., the Department of Justice (DOJ) asks three key questions in their Evaluation of Corporate Compliance Programs:
- Is the corporation’s compliance program well designed?
- Is the program being applied earnestly and in good faith?
- Does the corporation’s compliance program work in practice?
Benchmarking helps to answer these questions. An understanding of how a program aligns to guidance is essential and can also be used for informing program priorities and practices, and in building a business case for new initiatives and resources.
These long-standing issues lead to the key reasons why benchmarking delivers such value to ethics and compliance programs.
Value of Compliance benchmarking
There is so much more to benchmarking than simply identifying gaps in an Ethics and Compliance Program. It can validate program practices, provide data to bolster a business case for additional resources, inform on best-in-class approaches, and help determine priorities.
- Benchmarking has become a business imperative – As leaders demand data-driven decisions and investments, benchmarking has become a vital part of a defensible ethics and compliance program. The qualitative and quantitative insights from a benchmarking program can keep regulators, executive leadership teams, and Boards informed on how an ethics and compliance program aligns with guidelines, industry standards, and peer-driven best practices.
- Benchmarking is the foundation of data driven decisions – By knowing what is possible for similar programs of your size or within your industry, an ethics and compliance program informed by insightful benchmarking can help prioritize initiatives that align with the organization’s business strategy. Moreover, it identifies blind spots in the program that might otherwise go unaddressed.
- Benchmarking obtains buy-in – Benchmarking can help prove to internal stakeholders, such as HR, Communications, and other functions, what programs (e.g., training, third-party risk management, data protection) are needed to drive strategic objectives. It also provides the crucial evidence for making the case for additional budget and resources (or to protect what has already been allocated). And, it helps to drive collaboration with other functions that will want to access the data coming from ethics and compliance.
- Benchmarking is a vital part of a defensible ethics and compliance program – Regulators expect that you have compared your program to the guidelines, industry standards, best practices, and to that of your peers. A regular practice of benchmarking prepares you to answer a regulator’s questions about how you verify the strength and the appropriateness of your program.
Approaches to benchmarking
Organizations approach benchmarking in a number of ways.
• Benchmarking as part of a program assessment: Some organizations work with external consultants and include benchmarking as part of a broader program assessment process. While this process is comprehensive, it can be costly in terms of time and resources.
• Element- or industry-specific benchmarking: E&C teams can focus on specific program aspects and data or may leverage industry-specific benchmarking resources. These approaches are valuable and can contribute to a robust program, although by themselves will not provide a holistic view of the entire program.
• Benchmarking against guidance updates or organizational changes: This benchmarking is typically ad hoc and reactive to evolving internal and external dynamics. These elements can be useful for defining baselines and/or identifying key areas for improvement. These approaches offer important insights that can inform priorities and program investments. They typically involve both external and internal teams. They are also often performed on a periodic basis, offering a “point in time” snapshot of the ethics and compliance program’s state.
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Selecting a benchmark
The reality for ethics and compliance teams is that circumstances evolve, and senior leaders continually ask questions as different topics and risks arise. In those situations, a six-month-old benchmark is not ideal. It is vital to have a resource that enables on-demand access to benchmarking, giving you data to answer unexpected questions, and be able to proactively check benchmarks before making recommendations.
At times, ethics and compliance teams may also want to gather an understanding of the state of the program without involving either external or internal parties. In this instance, it is important to have benchmarking available at any time without needing to consult anyone else.
To be effective, it is a best practice to benchmark against a range of criteria that reflect the various aspects of an organization.
- Industry: Benchmarking by industry allows you to compare practices against companies that face the same regulatory mandates and expectations.
- Headcount: E&C programs differ by organizational size and maturity. Benchmarking against companies of a similar scope provides a more relevant comparison.
- Annual Revenue: Comparing practices to companies with similar revenues – or aspirational revenues – can be helpful for prioritizing activities.
- Best-in-Class: Comparing practices to organizations recognized for excellence (e.g., the World’s Most Ethical Companies®) offers a valuable way to understand how your program stacks up to those that have been judged as cutting-edge. Organizations with robust ethics and compliance programs have also been shown to outperform others in financial terms.
Benchmarking that only scratches the surface, uses the wrong standards, or relies on outdated data will do little to guide you into the future of compliance excellence. A well-designed benchmark gives you insights in a multifaceted way–across a broad range of topics that define the elements of an effective program and drilling deep into specifics on how your program interacts with each topic and risk.
Key business areas that should be covered in a benchmark include:
- Ethics and compliance program elements and activities:
- Structure, staffing, and organization
- Ethical culture measurement
- Codes and policies
- Training and communications practices
- Audit and risk assessment
- Investigations and incentives
- Third-party business partner interactions
- Board of Directors and governance practices
- Initiatives to support a strong value chain
- Environmental and social impact reporting and transparency
Below are three examples of how benchmarks across a range of E&C topics have led to deeper insights or additional lines of inquiry that support compliance leaders in their mission to mitigate people-created risk.
We have several benchmarks around interactions between the Audit Committee and the leader of the Ethics and Compliance (E&C) program. We ask about Board training, the frequency of updates provided to the Board, whether the E&C leader has a reporting line to the Board, and the Board’s ability to hire or fire the E&C leader or have input into their performance evaluation. Combining or cross-referencing benchmarks across this topic helps us assess the true level of Board engagement and E&C leader independence and whether these functions are operating with the many instances of independent oversight essential to a mature E&C program.
Benchmarks on the ways that companies assess their ethical culture can reveal missed opportunities to hear from employees. More than 88% of companies use engagement surveys and 63% use dedicated ethical perceptions surveys. But additional information that could be gained by using of other available channels is sometimes left on the table. Take exit interviews for example. 67% include an E&C-related question in their employee exit questionnaires but there’s the question of who receives these questionnaires. Is it only used for voluntary terminations, or could the pool be broadened to include those impacted by reduction in workforce terminations?
Benchmarks can highlight areas across the E&C workflow where there are failures to close the loop. For example, more than 80% of companies provide some type of E&C discussion guidance for their managers yet less than 50% of companies require mangers to have these E&C related discussions and even fewer have a formal process to get feedback from managers about these conversations. That is a lot of effort going into creating support resources, but failure to boost their use or understand their effectiveness leaves the E&C program with a lack of evidence of outcomes.
