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The Limitations of Corporate Compliance: Establish an Ethical Culture in an Era of Scandal

by Jordan A. Thomas

November 07, 2011

With a strong ethical culture, an organization is able to instill in its employees a sense of stewardship and personal accountability that looks beyond the next quarter's earnings.

After more than 15 years in federal law enforcement, first as a Trial Attorney at the Department of Justice and later as an Assistant Director in the Enforcement Division of the U.S. Securities and Exchange Commission (SEC), one thing has become certain about corporate compliance: Many programs, well wrought, thoughtful and expensive as they may be, only address half of the equation. They focus largely on the mechanics of compliance and the practical response to misconduct. A more important and preemptory issue--establishing an ethical culture that deters misconduct--is often absent from the calculus. 

Without a robust ethical platform, corporate compliance is a post-facto and tactical exercise. In a post-Dodd-Frank environment, the stakes are too high for tactics. Companies need ethical strategists. Any corporate leader who disagrees need only consider that, with the new SEC whistleblower provisions enacted by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the federal government has deputized virtually every company employee, vendor, customer (and their second cousins) to serve as their eyes and ears. The scrutiny is, and will grow far more, intense. It's time to develop a new paradigm for corporate character. This is particularly important in an economic downturn, when executives send messages about profit-or-else and fears about job security can supersede ethical decision-making. It's time for corporate leaders, in-house and outside counsel included, to make principles like doing the right thing and fulfilling responsibilities to investors, customers, and employees a fundamental part of doing business. Given the unprecedented attention the whistleblower provisions of Dodd-Frank have generated, this is a moment of real opportunity. 


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