A new report by LRN, the leader in ethics and compliance solutions, has found that risk mitigation and risk analysis were the main areas that E&C programs prioritized over the past 12 months as the use of AI, hybrid working models, and regulatory action increased in frequency last year.
The latest edition of LRN’s Ethics & Compliance Program Effectiveness Report has also found that over 60% of organizations have incorporated ethical behavior into performance systems, major hiring decisions, promotion, and bonuses, showcasing the use of incentives to promote risk-adverse behavior.
According to the report, the focus of E&C programs has shifted significantly in the past year, from areas like bribery and corruption (27%) to complex government regulations (94% have put effort into this), information security including AI (90%), and data protection (91%). In tandem, nearly three-quarters (74%) of organizations say they have made significant changes to their E&C programs to better reflect the needs of remote and hybrid employees.
52% of respondents said their executive leaders are generally “walking the talk” when it comes to dealing with compliance risks by operationalizing company values. However, the data also illustrates that these decisions are largely taken by executive leadership (76%), rather than middle managers (39%). This indicates that those at the middle level may be struggling to make difficult decisions consistent with company values and purpose.
The report also found that 53% of organizations with high-performing E&C programs have disciplined or terminated a senior executive for unethical behavior in the past year, and that there is a growing global use of compensation clawbacks in the event of misconduct – with 73% of organizations with high-impact programs having clawback policies in place.
This release from LRN marks the 10th anniversary of the landmark report and is based on a survey of more than 1,400 E&C professionals, the vast majority of which come from companies and organizations with at least 1,000 employees in 19 different countries and 26 industries across North America, Europe, and Asia-Pacific.
Other notable findings from this year’s report include:
- Nearly two-thirds of respondents (63%) indicated that their boards actively ensured that misconduct by senior executives or excellent performers was addressed within the last year.
- 77% of E&C professionals indicated their organization emphasizes values rather than rules to motivate ethical behavior—a 27 percentage-point increase from when LRN first asked this type of question in 2016.
- More than four out of five high-performing programs indicated that their board engaged in E&C oversight, possessed E&C expertise, and received E&C training—1.4 times more than less-effective programs.
- Fewer (only 38%) respondents said they have strengthened risk controls in the areas of sanctions and trade controls, down from 45% just two years ago, despite an increased focus on the global risk landscape and the ongoing conflicts in Ukraine and the Middle East as well as continued sanctions on China, Russia, Iran, and other countries.
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