Legislative changes have made compliance a focus for companies over their lifespan. The law is tough, and will only get tougher. Companies cannot neglect any aspect of their observance of the law, because it applies to them all, in an integrated way. And it falls directly on the shoulders of executives, who are running out of excuses for things that are done the wrong way at their organizations.
Is this the goal of ethics or social responsibility (SR)? Why do we need ethics, if the law is intended to encompass everything, and covers us enough as it is? Does compliance make ethics or SR unnecessary? No. Actually, they have different goals.
- Compliance is about ensuring that the actions of executives, employees and suppliers do not go against regulations or standards. Objectives are set outside the scope of the company, by society, governments and judges, and companies accept them and try to avoid doing evil, to stay clear of problems.
- Ethics takes another approach: It is about getting executives and employees to always act responsibly, and looking out for what is best for the company, customers, colleagues and peers, and society. The goals are set by the company: Do good—don’t just avoid evil. What good, exactly? That is up to each company to answer: for its customers, its suppliers, its employees, its neighbors… And don’t be evil, not only to avoid problems, but because of your pursuit of excellence.
I explained these before, leaving their definition and explicit communication up to the company, its executives and its employees (and up to society, which will control them): This is no small responsibility. That is why many companies prefer compliance over ethics, as it causes fewer headaches. Can I cook the books? No, because you will get nailed, says the director of compliance. Ethics asks the question: What does it mean if my company’s accounting is carried out according to criteria of excellence? Ugh! That forces me to think about what information I give to each stakeholder, which evaluation criteria are the most appropriate, and so on. Of course, many would prefer for the law to tell them exactly what to do.
Those that are the focus of compliance, of course, but others too. There are also moral standards, which are not included in regulations: Don’t be evil, don’t try to do good using evil means, i.e., the end does not justify the means (if you don’t believe it, analyze the consequences of disregarding this standard)… Ethics does not excuse anyone from compliance with standards, whether internal or external, however it adds other standards (not “mandatory” under penalties of fines or imprisonment, but necessary, even essential, to be a good company or a good executive), and clarifies the legal standards, because these are sometimes unjust and clearly harmful—not for the economic interests of the company, but for its human quality. And this, of course, brings on new headaches, which is why many prefer pure compliance to ethics.
Virtues are something that compliance is incapable of seeing, not by a long shot. Virtues are the key to learning experiences and, therefore, the transformation. Should I hide some income from the tax authorities? Compliance says: No, because the weight of the law will fall on you. Ethics says: No, because you’re learning to do something evil, and the next time it will be worse… and if you keep going with it, this will not work. A system based solely on compliance with standards only has one correction mechanism: Awards and punishments, both external (fines, imprisonment, lawsuits, etc.) and internal (instant terminations, frozen wages, retaliation by the director of human resources, etc.). Ethics has the same mechanism, but also adds another: Try again, because you have to be a good professional, an excellent person; because you cannot separate your private life from your professional life, etc.
The moral of the story: Companies must surrender to compliance. But they can’t stop there. They need to add ethics. Not just add it—they have to work with both at the same time. Of course it is not easy, but who ever said running a business was easy?