What does Ethics have to do with Compliance?

A more sophisticated answer is that there’s a huge subject matter overlap between the two disciplines — you can’t consider one without considering the other. In part because an increasing number of regulations address ethical issues. Regulators aren’t just looking at ‘what’ companies do; in many cases, they’re looking at the ‘how’ as well. Some industries even have regulators that specifically focus on this. Financial Services, for example, has ‘conduct’ regulators’ that focus on areas like consumer protection and orderly markets. They’re not called ‘ethics regulators’, but the list of areas they focus on have ethical components.

This trend is likely to continue. If you’re operating in a regulated industry, it means that the activity you’re engaged in has some form of societal impact that is significant enough to require regulation. In other words, there are seriously undesirable consequences from a failure to conduct business in a particular way. While some regulators will mainly focus on delivering a service or product – food safety, for example – others will be concerned about continuity of supply. We know what happens when banks or utilities fail in a disorderly manner. That has led, and will lead to, an increasing regulatory focus on sustainability — in simple terms, does the regulated company have a sustainable business model?

With the internet facilitating both transparency and citizen activism, the risks of unethical behaviour being exposed and having negative business consequences are more significant than ever. Even those regulators who don’t have a conduct-type mandate are likely to be keeping an eye on this. Where the regulatory gaze lands, rules tend to follow — today’s ethical issues are likely to become tomorrow’s rules.

As well as external factors, it’s also worth remembering that how your company discharges Compliance also has an ethical component. Consider the question of how you encourage your employees to be compliant – are you implementing the ‘letter of the law’, or do you also consider the ‘spirit’ of the rules? What happens when there’s a mismatch between what regulation requires and the risk tolerance your company has? When regulation is stricter than you’d otherwise like, you don’t have a choice. But what about when the law allows you to go further than you would? Do you take the view that “just because you can, doesn’t mean you should”, or do you push your activity to the limits of the law? What about regulations that don’t (yet) exist but probably should – do you proactively behave as if they do, or do you reactively wait until they exist? I’m not suggesting you have to “front-run” or “gold plate” every regulation. After all, sometimes the rules make little or no sense. But the approach you adopt to thinking about this unavoidably ends up having an ethical element.