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Reducing Overall Ethics and Compliance Risk

8 Ways to Reduce Your Overall Ethics and Compliance Risk

Ethics in business isn’t solely about taking a stance in your business objectives or switching to moderately more sustainable suppliers. It’s often about compliance, both within your business in the form of employee rules, and as an entity with legal compliance.

Any time there are rules, there are going to be penalties for breaking them. These can range from having to terminate an employee, to losing contracts, to losing certifications and opportunities. In extreme cases, it can even include fines, civil or criminal penalties, and worse.

What Are the Top Challenges in Ethics and Compliance?

Before you can know where to start with ethics and ethical compliance, you need to know what the biggest threats can be. We don’t just mean writing “sexism” on a whiteboard, though.

Bribery in the Workplace


  • Corporate culture. We’ve all heard stories of “boy’s club” businesses and other workplaces where bigotry is alive and well. A good and proactive company culture is incredibly important and is one of the biggest threats in business ethics, as well as one of the easiest areas to let slip over time.
  • Bribery and corruption. We live in a world where money is forever important, and that means there will always be a financial incentive to undercut or violate ethics to put food on the table. You can help fight this through a good pay and benefits package, but you still need to watch out; more than a few millionaires have been bribed, after all.
  • Privacy and data protection. In our increasingly connected digital age, individual privacy is a huge and growing concern. The EU’s GDPR is a step in the right direction, and even non-EU companies might take lessons from it.
  • Antitrust. One of the more potentially complicated ethical issues in business is the concept of antitrust and fair competition. In broad terms, you need to be able to compete on your own merits, not through abusing or exploiting an audience or damaging competition.
  • ESG. This stands for Environmental, Social, and Governance, and is a huge part of ethical production in global capitalism. Focusing on the ethics of environmental protection, the social protection and support of those throughout your supply lines, and the good governance of your company is critical.

All of this is a lot to cover, and it’s very comprehensive. So, how do you reduce the risk of violating these rules and the ethical stances on which they’re based? Here are eight tips to help you navigate the issue.

1: Perform a Robust Risk Assessment

A robust risk assessment is a multi-stage process.

It starts with risk identification. This is a thorough analysis of your business, industry, contracts, product, and even customers. What risks are there likely to be in your area? What risks are minor, and what risks would compromise your organization’s ethical values? Pay special attention to ethical compliance regulations in your industry, region, or for specific contracts you have with vendors or suppliers. For example, anything that would jeopardize your company’s Fair Trade designation would be a high priority.

Performing a Robust Risk Assessment

Second, you need to perform a risk analysis. This phase of the assessment is all about understanding the risks you’ve listed and what they mean.

  • What is the underlying nature of the risk?
  • What sources can be the originator of the risk in your business? I.e., would it come from employees, leadership, suppliers, etc?
  • What would cause a violation of the ethical rules, and what pressures would be required for that to happen?
  • What controls exist to mitigate or prevent these risks from becoming problems?
  • How significant is the risk, and what damage could a violation cause?

Once you have this information, you put it together in a risk evaluation. The risk evaluation compares the risks and the reality of your operations, and looks for whether or not some level of risk is acceptable or if there can be zero tolerance. This helps you build a complete risk profile for your business.

2: Review and Codify Rules

The second step in reducing your overall risk profile as a business is to take the risks you’ve outlined and codify them into rules of conduct and operation. You will need several sets of rules. Some apply to employees in general; others apply to specific teams or groups of employees. Some apply to leadership. Some apply to business practices.

All of these rules need to be specific, relevant, and well-codified. Vague rules don’t serve anyone well and don’t allow for consistent enforcement. Rules need to be precise enough that they can catch violations but not so narrow that they can easily be skirted. Further, penalties for violating the rules need to be significant enough that they’re meaningful. As the saying goes, “If the punishment for breaking a rule is a fine, then it’s not illegal for the rich.”

Reviewing and Codifying Rules

Rules also need to be reviewed and revised over time. A big part of ethical frameworks and compliance in business is adapting to the realities of a situation. Your rules won’t be perfect, nor will your enforcement; if something slips through, the rules need to be changed, and appropriate action needs to be taken. Ideally, though, if other elements of this list are handled properly, you won’t need to deal with rules lawyers.

3: Identify Responsible Individuals

Unlike what the headline might make you think, this isn’t about the individuals responsible for violations, though you will always need to identify them if such a thing happens.

No, you need to identify specific people whose role it is to help enforce the ethical rules of the workplace and the business. At the top level, this might be a Chief Compliance Officer. For lower and middle management, it might be specific managers or team leads tasked with being responsible for ethical performance and reviews. These individuals may also be responsible for conducting audits and reviews periodically to validate that the business as a whole is still in compliance, that rules are still effective, and that ethical policies and stances are in line with company values.

Identifying a Responsible Individual

The people you put into these roles likely won’t be doing this as their sole duty, except maybe the CCO. Often, it’s a secondary role assigned to specific managers and middle-tier leaders. These people need to be chosen for their integrity, proactivity, and ability to handle the task.

4: Conduct Regular Audits and Validation

No matter how thorough your risk assessment or how comprehensive your rules and planning are, you will need to adjust from time to time. Annual audits are generally the way to go. These audits check for potential ethical violations or areas where compliance has slipped over time. They also look for gaps in rules that may have been exploited.

Conducting a Regular Audit

On top of this, your audits will also need to perform supplemental risk assessments. These will validate that compliance regulations, governmental or industry-related regulations, and the ethical landscape haven’t changed.

Social standards change, and progress happens all the time. What might have been a progressive and proactive stance a few years ago might now be the bog-standard baseline or even behind the curve if it’s been long enough since the last time you updated your policies and values. You need to be able to adjust and change your standards without it becoming a whole ordeal.

5: Outline Training Gaps and Fill Them

It’s one thing to have a broad, top-level ethical stance as a company. It’s quite another to put that stance into action.

Many large companies have ethical stances that position them as progressive when, in actuality, everything at the ground level is business as usual. Some are better at lying about it than others, but it’s a consistent problem.

Additionally, having a large handbook of rules that stem from ethical viewpoints is fine, and having penalties for violating those rules is fine, but you also need to make sure your employees aren’t just handed a 500-page rulebook and thrown to the wolves.

Outlining Training Gaps

The goal here is to be proactive and effective. Training videos and monthly ethics check-ins don’t do much when they’re rote and out of date. Being reactive to a violation is fine, but it’s much better to head potential violations off at the pass. The goal is to develop proactive training based on gaps in behavior or even in common knowledge. You want to identify areas where training can decrease the risk of an ethical issue and provide tangible reasoning and rationale that can be followed more easily than an arcane rule with no backing.

6: Provide Methods for Feedback and Violation Reporting

Another critical element of ethical frameworks and compliance in business is the ability to report violations. You can’t just have an individual to go to for a report; what happens if the individual making the report is seen and retaliated against? What happens if the individual receiving reports ignores them or is in on a violation? This is why having upright and ethical people in these positions is important, but it’s also a good reason to have anonymous reporting systems and other means of feedback.

An Employee Reporting a Violation

Additionally, these same mechanisms can be used to gather data and feedback for the state of the rules. If your employees are forced to choose between doing their jobs or following the company’s ethical guidelines, that’s not a good situation to be in. If your employees are under pressure from peers or management to violate rules, same deal. All of this can be difficult to report, and from the top down, it can be hard to even notice if something is going on.

7: Require Strong Ethics from Leadership on Down

Fortunately, ethical compliance isn’t always about rules and enforcement. Most people inherently want to fit in with the group, and a group is built by the dynamics of the leadership. Therefore, if your upper management and C-levels are ethical and forthright, then their direct reports and your management will strive to live up to their example. In doing so, your team leaders and other employees will similarly want to fit in, and those ethics will “trickle down” throughout the business. As long as rogue elements and violators are dealt with when they occur, and leadership maintains their stance, this can set a firm example throughout the organization.

Company Leadership

What does it mean to be ethical in a position of leadership?

  • Talk about the importance of ethics and, more importantly, “walk the walk” and avoid violating the very rules you talk about.
  • Keep employees well-informed about the issues that can impact them.
  • Acknowledge and, when possible, reward ethical conduct throughout the organization.
  • Have a strong and ethical character that withstands pressures to bend the rules.

Leadership isn’t just about the C-levels, directors, and upper management. Everyone in an organization in a position above the bare minimum is in a leadership position, and even then, there are leaders among peers. These standards must be upheld throughout the organization as much as possible.

8: Proactively Adapt to Changing Standards and Requirements

We’ve already mentioned this a couple of times throughout this post, but it’s worth having its own heading. Ethical standards change. Third-party and government agencies issue new rules and directives to hold companies to new standards. Social progressive movements draw new baselines. Sometimes it’s an issue du jour that is only high-key relevant for a few months or a year; other times, it sets a new baseline and is pushed throughout an industry.

A Flexible and Reactive Team

You have two goals: to be flexible and reactive to new changes and standards and to be proactive in meeting them. You can’t always predict what the next big social push will be, but by living up to overall ethical standards, you can be in a good position to lead the pack in your industry or area before those become new trends.

You don’t have to wait for annual audits to identify and make changes, either. Sometimes, it can be beneficial to wait and perform a more thorough analysis to make sure you aren’t knee-jerk reacting to something in a bad way, but often, when you’re on the progressive side of the coin, you’ll head in the right direction.