Culture, Compliance, and the C-Suite

How Executives, Boards, and Policymakers Can Better Safeguard Against Misconduct at the Top

by Michael D. Greenberg

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Research Questions

  1. Are there practical ways to strengthen the C-suite as an institution and to better support executives in their commitment to high ethical standards, compliance with the law, and transparency toward shareholders and employees?
  2. How can strands of management and governance practice within organizations be modified or leveraged to support better C-suite practice and ethical tone in the future?

Abstract

On May 2, 2013, the RAND Corporation convened a symposium, "Culture, Compliance and the C-Suite: How Executives, Boards and Policy-Makers Can Better Safeguard Against Misconduct at the Top," to stimulate a broad conversation about the challenges posed by executive misconduct (e.g., episodes of fraud, malfeasance, unethical behavior) at the level of the chief executive, financial, and other officers (sometimes called the C-suite). The symposium conversation also focused on the risk factors that contribute to executive misconduct and on practical steps that could be taken to strengthen compliance and ethical tone at the C-suite level and the unique roles of directors, top executives, chief ethics and compliance officers (CECOs), and government regulators and policymakers in pursuing those steps. Prior to the symposium, several of the invited participants were asked to prepare and present formal remarks on corporate culture, compliance, and the C-suite. Their white papers, distributed in advance of the event, represent varied perspectives on law enforcement, organizational behavior, and compliance activity, all relating to instances of C-suite misconduct. The speakers presented their remarks during the first session of the symposium. The second and third sessions engaged the symposium participants in interactive discussions, launching from the foundational remarks initially offered by the white-paper authors. These proceedings summarize the discussion and include the white papers.

Key Findings

Misconduct in the C Suite Often Reflects a Basic Compliance Gap in Corporate Management

  • That gap manifests itself in multiple ways: between what top executives say is important and what they actually model through their behavior; between "tone at the top" as a vague expression of values and the embodiment of those values through an effective, management-driven compliance and ethics program; and between a legalistic, check-the-box approach to compliance in the C-suite and a deeper commitment to ethical culture as a basic element embedded in the operating fabric of the corporation.

Board Priorities for Preventing and Detecting Misconduct in the C-Suite Can Draw on a Range of Structural and Cultural Reforms

  • Structural reforms refers to tangible elements in the structure of management within the organization, including such things as executive compensation incentives, whistleblower protection processes, and a direct line of communication between the chief ethics and compliance officer and the board. Cultural reforms refers to "softer" elements in the values and expectations in the workplace, which can nevertheless be modeled and influenced by the oversight and behavior of the board.

Having an Empowered, Independent Chief Ethics and Compliance Officer Contributes to C Suite-Level Compliance and Ethical Culture, and This Has Implications for Restructuring the CECO Role

  • The resourcing and authority of the CECO role needs to be congruent with the responsibilities that that person is tasked with carrying out. If the CECO is expected to drive C&E practice and to address C&E risk at the top of the organization, then his or her seniority and access to the board and C-suite will need to be commensurate with those performance expectations.

Recommendations

  • There is a broad range of board-level interventions that could be undertaken to improve compliance and ethics oversight within the C-suite. Examples of these interventions include enhanced board training; adding new board members with professional experience as chief ethics and compliance officers, undertaking board-instigated assessments of C-suite compliance risk and ethical culture, and improving board practice in vetting new candidates for the position of chief executive officer to reduce related compliance risks.
  • The seniority, positioning, and power of the CECO need to be fundamentally congruent with the functional responsibilities that that person is expected to carry out. To the extent that the CECO is tasked with training and engaging the C-suite, serving as an independent voice in the C-suite, and evaluating C-suite compliance culture and risks, while contributing a C&E perspective to top-level strategic and operational decisions within the company, the CECO will require sufficient access and authority in order to carry out those various tasks successfully.

Table of Contents

  • Chapter One

    Introduction

  • Chapter Two

    Invited Remarks from Symposium Participants

  • Chapter Three

    What Are the Fundamental Compliance and Ethics Challenges Facing the C-Suite, and What Oversight Role Should the Board Play?

  • Chapter Four

    How to Overcome the Barriers to High Standards of Integrity in the C-Suite, and What Should Boards, Management, and Policymakers Do Next?

  • Appendix A

    Symposium Agenda

  • Appendix B

    Symposium Participants

  • Appendix C

    Invited Keynote Address by Judge Ruben Castillo

  • Appendix D

    Invited Papers from Symposium Participants

The research described in this report was supported in part, by the generosity of RAND's donors and by the fees earned on client-funded research, with additional support provided by Pepper Hamilton LLP, and was conducted in the RAND Center for Corporate Ethics and Governance, a part of the RAND Institute for Civil Justice within RAND Justice, Infrastructure, and Environment.

This report is part of the RAND Corporation conference proceeding series. RAND conference proceedings present a collection of papers delivered at a conference or a summary of the conference.

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